# Econ balance question

G – T = (S – I) – (X – M) “A fiscal deficit [(G – T) > 0] implies that the private sector must save more than it invests [(S – I) > 0] or the country must run a trade deficit [(X – M) < 0] with cor- responding inflow of foreign saving, or both.” I srsly don’t get this. Why does (S-I) have to be greater than zero? (S-I) and (X-M) both can be negative and have (G-T) still negative. Does anyone have good way of memorizing this? Thank you

S= I + (G - T) + (X - M)

so if,

S = I +(10 - 5) + (20 - 25)

Why is it

S = I + (-5) + (+5)

WHY ?

how is (10 - 5) = -5???

Okay, so the country currently has a fiscal deficit (spending more than receiving, G > T ) . Let’s give this net balance 5.

Therefore the other half of the equation, (S – I) – (X – M) MUST equal 5.

Therefore, as you can see ( S - I ) needs to be a positive figure ( i.e greater or equal to 5) as we now have to subtract ( X - M )

I think you understand it, just mabye needs a couple of days to get your head around it. Perhaps find a couple practise questions from Qbank as that will also explain the answers more clearly than I have,

But if you have negative (X - M), then it would add to (S - I)…

Because the trade deficit will be a minus. Therefore it it minus a negative number = positve number.

I think that’s right. Someone please correct if not.

screw it.

gonna skip this LOS and guess it on exam

i’m so confused

G – T > 0; it’s positive.

If S – I < 0 (negative) and X – M > 0 (positive), then (S – I) – (X – M) is negative – positive = negative; thus, it cannot equal G – T (positive).

So . . . either S – I > 0, or X – M < 0.

That’s what they said.

No. But the above is a good way of understanding it so that you don’t have to memorize it.

You’re welcome.