Use the following terms for this question: (X-M) = Current Account Balance (CI-CO) = Capital Account Balance (FI-FO) = Financial Account Balance (I-S) = Investment-Saving Balance FXB = Reserve Balance BOP = balance of payments GDP = gross domestic product C = consumption I = capital investment spending G = government spending The static equation for the BOP is:

A. (BOP) = (X-M) + (CI-CO) + (FI-FO) + FXB.

Explanation:

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Balance of payment (BOP) = Balance of current account + Balance of capital account + Balance of financial account + Reserve

Current Account Balance = (X-M) --- Export - Import

Capital Account Balance = (CI-CO) --- Capital Inflows - Outflow

Financial Account Balance = (FI-FO) --- Financial inflow - Outflow

Reserve Balance = FXB

Therefore, the static equation for the Balance of payment (BOP) = (X-M) + (CI-CO) + (FI-FO) + FXB.

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