According to the definitions of the payment flows shown in the open-economy circular flow diagram, total foreign transactions are in balance when:

Question

Quizplus · Accepted Answer

The correct answer is A because it represents the balance of total foreign transactions when exports minus imports (X-IM), plus net unilateral transfers (Tr_F), plus net income from abroad (r_F) and net capital transfers (S_F) sum to zero. This equation captures all components of the balance of payments, ensuring that all transactions are accounted for and balanced.

According to the Definitions of the Payment Flows Shown in the Open-Economy