Question

If the United States saves $1,000 billion and U.S. net capital outflow is –$200 billion, U.S. domestic investment is
a. $800 billion.
b. $1,000 billion.
c. –$200 billion.
d. $1,200 billion.
e. $200 billion.

Answer 1

To determine U.S. domestic investment, we can use the following relationship between savings, domestic investment, and net capital outflow (NCO):

\[
\text{Savings} = \text{Domestic Investment} + \text{Net Capital Outflow}
\]

In this case, we have:
- Savings = $1,000 billion
- Net Capital Outflow (NCO) = –$200 billion

Now we can rearrange the equation to solve for Domestic Investment:

\[
\text{Domestic Investment} = \text{Savings} - \text{Net Capital Outflow}
\]

Plugging in the values:

\[
\text{Domestic Investment} = 1,000 - (-200) = 1,000 + 200 = 1,200 \text{ billion}
\]

So, the answer is:
**d. $1,200 billion.**