For the following questions assume the following facts:
(1 ) Balance of Payments = 0 prior to the transactions.
(2 ) Person A (who lives in the United States) purchases an airplane from British Airways for 150,000.
(3 ) Person A pays with a check from his account at First Union Bank in the United States.
(4 ) British airways, since it will need dollars in 1 month, deposits the check at the Bank of England.
(5 ) Bank of England deposits the 150,000 at Commonwealth bank, which is located in the United States.
Due to the transactions above, what are the effects on the reserve at the Fed?
A) Fact 2 is a decrease of 150,000, fact 5 is a decrease of 150,000, a net effect of -300,000.
B) Fact 3 is a decrease of 150,000, fact 5 is an increase of 150,000, a net effect of 0.
C) Fact 3 is an increase of 150,000, fact 5 is a decrease of 150,000, a net effect of 0.
D) Both fact 3 and fact 5 result in increases of 150,000, a net effect of +300,000.
E) Both fact 3 and fact 5 result in decrease of 150,000, a net effect of -300,000.
Question 2
What types of government intervention did the World Bank determine was common in the HPAEs?
What will be an ideal response?
