From the national income identity, we can derive the following relationship for the trade balance (net exports):

Question

Quizplus · Accepted Answer

According to the national income identity, Y = C + I + G + NX. Rearranging the equation, we get NX = Y - C - I - G. Substituting S = Y - C - G and T = G + TR - INT, we get NX = -S + I - T. Simplifying further, we get NX = S - I + (INT - TR). Thus, the trade balance (NX) is equal to the difference between domestic saving (S) and domestic investment (I) plus the difference between income earned on domestic assets held by foreigners (INT) and income earned on foreign assets held by domestic residents (TR). Therefore, choice C is the correct answer as it represents the derived relationship for the trade balance.

From the National Income Identity, We Can Derive the Following