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 ≡ X - M ≡ (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 ≡ X - M ≡ (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)When BCA is negative, it implies that government budget deficits an/or part of domestic investment are being finance with foreign-controlled capital.
D)All of the above are true

Quizplus · Accepted Answer

A) If (S - I) < 0, it means that domestic investment is greater than domestic savings, implying that the country will have to rely on foreign borrowing to finance domestic investment.
B) If (T - G) < 0, it implies that the government is running a budget deficit and will have to rely on borrowing or other sources of financing to cover government expenses.
C) When BCA is negative, it means that a country is importing more goods and services than it is exporting, which may result in a need for foreign borrowing to cover the trade deficit. It also means that there is a net outflow of capital from the country, indicating that foreign investors are financing some of the country's domestic investment and/or government spending.

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