Question

Let C stand for consumption spending, I for investment, G for government purchases, X for exports, IM for imports, DI for disposable income, and NT for net taxes.

Consider the following identity and answer the questions that follow.
C + I + G + (X - IM) = DI + NT
Which of the following best characterizes the above identity?
a. National income must equal domestic product.
b. Domestic product must exceed national income.
c. Domestic product must equal the total amount of leakages from the nation's flow of income and expenditures.
d. Domestic product must equal the total amount of injections into the nation's flow of income and expenditures.
True or False: Imports must equal exports.
a. True
b. Flase

Answer 1

Answer: Option (a) is correct.

Step-by-step explanation:

C + I + G + (X - IM):

Above equation represents the gross domestic product of a country.

DI + NT:

The summation of disposable income and net taxes represents the national income of a nation.

Therefore, national income must be equal to the domestic product.

The statement is false that imports must be equal to the exports because imbalances in the current account can be balanced by the imbalances in the capital account.