From the national income identity,

Question

Quizplus · Accepted Answer

The national income identity states that GDP (Y) is equal to consumption (C) + investment (I) + government spending (G) + net exports (NX), or Y = C + I + G + NX. Rearranging this equation, we get NX = Y - C - I - G, which shows that the trade balance (NX) is equal to the difference between domestic output (Y) and domestic spending on consumption, investment, and government purchases (C + I + G), or net exports (NX) = Y - (C + I + G). The identity also shows that national saving (S) is equal to domestic investment plus net capital outflow (NCO), or S = I + NCO. Rearranging again, we get NCO = S - I, which shows that net capital outflow (NCO) is equal to the difference between national saving (S) and domestic investment (I). Combining these equations, we can see that NX = NCO. Therefore, choice A is correct. Choices B, C, and D are incorrect.

From the National Income Identity