Question: 2. Explain why X IM = (S I) (G T). Now multiply both sides of this equation by 1 to get

2. Explain why X – IM = (S – I) – (G – T). Now multiply both sides of this equation by –1 to get IM – X = (I – S) + (G – T)

and remember that the trade deficit, IM – X, is the amount we have to borrow from foreigners to get Borrowing from foreigners = (I – S) + (G – T)

Explain the common sense behind this version of the fundamental equation.

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