Final answer:
The identity that equates net exports to net capital outflow is known as the saving-investment identity (option B). It explains how trade deficits or surpluses link with domestic saving, investment, and the balance of trade.
Step-by-step explanation:
The identity that shows the value of net exports equal to net capital outflow is called the saving-investment identity. This involves understanding how a nation's balance of trade is determined by its own levels of domestic saving and investment. When there's a trade deficit, more foreign financial capital is flowing into the country, and when there's a trade surplus, there's a net outflow of financial capital from the country.
The national saving and investment identity is represented by the equation S + (T - G) = I + (X - M), where S is private saving, T is taxes, G is government spending, M is imports, X is exports, and I is investment. The (X - M) represents the balance of trade, which can be either a surplus or a deficit. The equation showcases that what is saved (S), plus what the government saves, which is (T - G), is equal to what is invested domestically (I), plus the net exports or the balance of trade (X - M).