MACRO ECON MAJORS help!!?

Question

From the identities Y = C + I + G + NX and S = Y - C - G, you can derive the relationship S - I = NX, where Y is real income, C is consumption, G is government purchases, S is national saving, I is investment, and NX is net exports.

Using this relationship, which of the following statements does NOT describe an effect of having a low national saving rate while having high consumption and government purchases?

A. There will likely be net capital inflows.

B. There will likely be a trade deficit.

C. There will likely be high taxes.

D. There will likely be a high interest rate.

Answer 1

C. There will likely be high taxes. - this one is false

All the rest are true.

"D" is true because fall in domestic investment shifts domestic saving function left thus reducing investment and tending to increase interest rate.

"A" is true because higher interest rate will attract foreign investors thus creating more capital inflows

"B" is true because capital inflow means more import.

Answer 2

A. There will likely be net capital inflows.