A decline in domestic savings in a country (caused by higher consumption levels

Question

A decline in domestic savings in a country (caused by higher consumption levels due to lower taxes, for example) will lead, over time and other things equal, to (a) a decline in the country's net exports or (b) increase in the country's net exports. Mark the correct answer and explain. A decline in domestic savings in a country (caused by higher consumption levels due to lower taxes, for example) will lead, over time and other things equal, to (a) a decline in the country's net exports or (b) increase in the country's net exports. Mark the correct answer and explain.

Explanation / Answer

The correct answer is option A.

The decline in the domestic savings in a country is because there is decline in the country's net exports. If the exports are high it increases the domestic savings in the country as the products which are manufactured in the country are exported to the other country. As the taxes will be high if the exports are high and it leads to the increase in the domestic savings.

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