Everything else being equal, lower imports would most likely result in X-M is +ve surplus so the capital account has to be in deficit
-higher private savings.
-higher government spending relative to taxes (My choice) which is wrong
-higher investments relative to private savings.
Can you please me understand why 1st is correct?
the formula is X-M = (S-I) + (T-G)
So M is low so that left hand side is +ve. This means that the positive terms are high on the right hand side (Savings and tax) and the negative terms are low (Investment and Government spending). So look back to your choices, higher private savings (S) is right, higher government spending relative to taxes will result in T-G < 0, which is wrong. Higher investment relative to private savings will result in S-I <0, which is wrong as well.