In an open economy, the correct relationship among the national savings (S), investment (I), net exports (NX), and net capital outflow (NCO) is represented by option c:
S = I + NCO
Here's a brief explanation of the terms involved:
- S (Savings): The total savings in the economy.
- I (Investment): Domestic investment in capital.
- NCO (Net Capital Outflow): The net flow of capital out of or into the country, which can be thought of as the difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreign residents.
In an open economy, savings are used both for domestic investment and for purchasing foreign assets, which is why the equation is written as S = I + NCO.