Equilibrium in the circular flow model requires balanced injections and leakages Steps: - Identify key variables: Injections are I + G + X; leakages are S + T + M. - Equilibrium occurs when injections equal leakages: I + G + X = S + T + M. - Rearrange to show X - M = (S - I) + (T - G), meaning net exports balance domestic imbalances. - In a balanced scenario where S = I and T = G, X must equal M for overall equilibrium. Why C is correct: - The circular flow equilibrium condition implies that exports (X) must equal imports (M) when domestic saving equals investment and taxes equal government spending, ensuring no net foreign imbalance. Why the others are wrong: - A: Governments do not always adjust G for equilibrium; fiscal policy varies and may not target exact balance. - B: The statement is incomplete and unclear, but if referring to I ≠ S, equilibrium is possible via G, T, X, M adjustments, contradicting any implication of impossibility. - D: Lacks proper phrasing …