The accounting relationship between the budget deficit and the trade deficit may be expressed as ____.
A)G + T = (S + I) + (X − IM)
B)G − T = (S + I) + (X + IM)
C)(X − IM) = (S − I) − (G − T)
D)(X − IM) = (S + I) − (G − T)

Question

Quizplus · Accepted Answer

The correct accounting relationship between the budget deficit and the trade deficit is expressed as (X − IM) = (S − I) − (G − T), where X is exports, IM is imports, S is savings, I is investment, G is government spending, and T is taxes. This equation is a simplified version of the national income accounts identity, showing the relationship between a country's trade balance (exports minus imports) and the differences between savings and investment and between government spending and taxes.

The Accounting Relationship Between the Budget Deficit and the Trade