What is an essential tool for measuring the economic health of a country?

The balance of payments serves as a critical tool for measuring a country's economic health as it provides a comprehensive record of all economic transactions between residents of that country and the rest of the world over a specific period, typically a year. It includes both the trade balance, which captures the exports and imports of goods and services, and the capital account, which records financial transactions such as investments and loans.

By analyzing the balance of payments, economists can gain insights into how much a country is earning through exports versus how much it is spending on imports. A surplus indicates that a country is a net lender to the rest of the world, suggesting a strong economic position, while a deficit might point to reliance on foreign capital and could signal potential economic vulnerabilities.

This comparison allows for assessments of domestic economic stability, currency valuation, and overall financial interactions with other nations. The balance of payments can therefore reveal trends in international trade, investment flows, and currency strength, making it an essential measure of economic health.

In contrast, the other options, while related to economic activities, do not provide the same level of comprehensive insight into a country's economic situation. For example, exchange rates reflect the value of a currency but do not capture the totality of economic transactions. Tariffs may