Distinguish between a balance-of-payments surplus and a balance-of-payments deficit in terms of payments of official reserves.
What will be an ideal response?
A balance-of-payments surplus occurs when the current account exceeds the capital and financial account. This means that for balance the account, a payment of official reserves (e.g., foreign currencies) must be made to the United States. So the central bank purchase foreign currencies by selling U.S. dollars. This purchase of foreign currencies will increase the official reserves held by the United States.
A balance-of-payments deficit occurs when the capital and financial account exceeds the capital account. This means that to balance the account, a payment of official reserves (e.g., foreign currencies) must be made to foreign countries. To do the central bank sells its holding of foreign currencies and obtains U.S. dollars. This sale of foreign currencies will reduce the amount of foreign reserves held by the United States.
You might also like to view...
Automatic stabilizers are designed to
A) moderate changes in disposable income. B) stabilize the bi-partisan budget process. C) simplify the tax system. D) promote global trade.
M1 includes
A) currency, checking deposits and traveler's checks. B) money, stocks and bonds. C) money, checking deposits and traveler's checks. D) money market mutual funds, stocks and bonds.
Why are property rights important in economic development?
What will be an ideal response?
In 2012, approximately what percent of the national debt was held by the Federal Reserve system?
a. 5 percent b. 10 percent c. 40 percent d. 55 percent