Question

If domestic investment increases, and there is no change in the amount of private and public savings, what must happen to the size of the trade deficit?

Short answer

The trade deficit must increase.

Step-by-step solution

Step 1. Trade deficit

When a country's imports surpass its exports during a specific time period, it has a trade deficit.

Step 2. Explanation

The trade deficit must increase. To put it differently, this increase in investment will need a foreign financial capital inflow.