There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures.This relationship is given by BCA $\equiv$ X - M $\equiv$ (S - I)+ (T - G).Given this,which of the following is a true statement?
A)If (S - I)

Question

There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures.This relationship is given by BCA  $\equiv$ X - M  $\equiv$ (S - I)+ (T - G).Given this,which of the following is a true statement?
A)If (S - I) < 0, it implies that a country's domestic savings is insufficient to finance domestic investment.
B)If (T - G) < 0, it implies that a country's tax revenue is insufficient to finance government spending.
C)both a) and b) are true
D)none of the above

Quizplus · Accepted Answer

From the given relationship, if (S - I) < 0, it means that the country is not generating enough savings domestically to finance its domestic investment. Hence, option a) is true. Similarly, if (T - G) < 0, it implies that the country's tax revenue is insufficient to finance government spending. Therefore, option b) is also true. Hence, the correct answer is option c) - both a) and b) are true.

There Is an Intimate Relationship Between a Country's BCA and How