We know that National Savings is what’s left of National Income after Households Consume and the Government Spends (S = Y – C – G). And, we know that National Income equals GDP (Y = C + I + G + NX). Therefore, it is easy to show that a country’s trade deficit or surplus (NX) is directly tied to the country’s foreign investment surplus or deficit (Net Foreign Investment, NFI).
i. Graphically show the relationship and ii. Briefly Explain?