Components of Balance of Payments

Correct answer: D. Country's imports, exports and balance of payments

Explanation: The external sector covers economic transactions between residents of a country and the rest of the world. It includes imports, exports, foreign exchange flows and the balance of payments. These transactions influence national income, aggregate demand and the country’s international position, so they are macroeconomic topics.

Correct answer: A. Foreign transactions can affect exports, income and output

Explanation: The balance of payments records a country's economic transactions with the rest of the world. Exports are a component of aggregate expenditure and can raise domestic production, employment and national income, while imports are a leakage from the circular flow. Consequently, external transactions connect the balance of payments with income and output, making option A correct.