Economics - Reading 16 - GDP Question

CFA Level I Economics
#1

I was going through Kaplan reading material for Module 16.1 and was having trouble understanding the Q8. in Module 16.1 Quiz. The question is reproduced below along with the solution:

If a government budget deficit increases, net exports must:

a) increase or the excess of private savings over private investment must decrease

b) decrease or the excess of private savings over private investment must increase

c) decrease or the excess of private savings over private investment must decrease

I was having trouble understanding why solution (b) is being preferred over (a). Shouldn’t it be mathematically correct in implying that if government budget deficit increases, net exports can also increase provided that there is a similar decrease in excess of private savings over investment. Why is there an element of rigidity here? Is there something wrong in the way i have interpreted the reading materials ?

Any help appreciated!

Correct answer is (b).

#2

Recall the equation regarding total Saving:

S = I + (G – T) + (X – M)

If (G-T) increases (budget deficit), net exports must decrease or the excess of private savings over private investment must increase. In this case would be:

S – I = (G – T) + (X – M)

Hope it helps.

#3

Thanks - crystal clear now.

Economics has managed to single-handedly ruin my total quiz scores !