Which of the following is an identity that always holds in an open economy?
A)NCO + C = NX
B)NCO = NX
C)NX - NCO = C
D)NX + NCO = C

Question

Quizplus · Accepted Answer

In an open economy, the national income and output can be used for consumption, investment or net exports. Net exports refer to the difference between exports and imports. On the other hand, net capital outflow (NCO) reflects the difference between capital outflow and capital inflow. In an open economy, the national income and output can either be used for domestic consumption (C) or for exports (NX) and net capital outflow (NCO). Therefore, NCO must be equal to NX, making option B the correct answer. The other options do not accurately reflect this relationship between national income and output, consumption, and net exports or net capital outflow.

Which of the Following Is an Identity That Always Holds