There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures. This relationship is given by BCA ≡ X − M ≡ (S − I) + (T − G). Given this, in order for a country to reduce a BCA deficit, which of the following must occur?
For a given level of S and (T − G), I must fall.
For a given level of I and (T − G), S must be increased.
For a given level of S and I, the government budget deficit (T − G) must be reduced.
All of the options would work to reduce a BCA deficit.