X = exports, M = imports, S = saving, I = investment, T = net taxes, and G = government expenditure. Which of the following formulas is correct?

Question

Quizplus · Accepted Answer

The correct formula is A) X - M = S - I + T - G, which represents the national saving identity in an open economy. This equation shows that the trade balance (exports minus imports) is equal to national saving (saving minus investment) plus the government's budget balance (net taxes minus government expenditure).

X = Exports, M = Imports, S = Saving, I