If the United States saves $1,000 billion and U.S. net capital outflow is –$200 billion, U.S. domestic investment is

Question

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.