Equilibrium Domestic Production in an Open Economy
(Figure 22.1)

In the lower panel on the graph to the left, the saving-investment equilibrium is illustrated. The If=X-M curve is the current account balance. At point B, (press the Highlight Point B button to highlight the equilibrium point) this country exhibits a current account deficit. At the point B, domestic savings (S) is less than domestic investment (Id). Extra domestic investment must be financed by borrowing from foreigners abroad (or selling off foreign assets that were previously acquired).

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