If a country is running a trade surplus, which of the following is true?

Select all that apply.

Question

If a country is running a trade surplus, which of the following is true?

Select all that apply.

BlackTom AI · Accepted Answer

Question restatement: If a country is running a trade surplus, which statements are true? Choose all that apply. Option 1: Investment is greater than domestic savings (sum of public and private). This is not consistent with a trade surplus. In an open economy, the identity S - I = NX ties savings minus investment to net exports. A trade surplus means NX > 0, which implies S > I. Therefore, this statement is false because it asserts the opposite relationship between savings and investment. Option 2: Domestic savings (sum of public and private) is greater than investment. As explained by the S − I = NX identity, a trade surplus (NX > 0) corresponds to S > I. This means the country saves more than it invests domestically. This statement is true. Option 3: Investment and domestic savings (sum of public and private) are equal. Equality would imply NX = 0. A trade surplus requires NX > 0, so equality is incompatible with a surplus. This statement is false. Option 4: The country is lending to the rest of the world. If S > I, the excess saving funds foreign investment, meaning the country is a net lender to the rest of the world. This aligns with a trade surplus scenario. Hence, this statement is true. Option 5: The country is borrowing from the rest of the world. Borrowing from the rest of the world would correspond to S < I (or NX < 0), i.e., a trade deficit. Since the country has a trade surplus (NX > 0) in this question, this option is false. In summary, the true statements are those that reflect S > I and net lending abroad, namely Options 2 and 4. The false statements are Options 1, 3, and 5, which misstate the relationship between savings and investment or mischaracterize the direction of capital flows associated with a trade surplus.

FA25 ECON 302 002 Final Exam

If a country is running a trade surplus, which of the following is true? Select all that apply.

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