Author Question: For the following question assume the following facts: (1 ) Balance of Payments = 0 prior to the ... (Read 68 times)

Mr.Thesaxman · **on:** Jun 30, 2018

For the following question 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 balance of payments?
A) -150,000 due to import of good (current account debit)
B) +150,000 due to import of good (current account credit)
C) -150,000 due to deposit of Bank of England (capital account debit)
D) +150,000 due to deposit of Bank of England (capital account credit)
E) No effect (150,000 current account debit and 150,000 capital account credit)

Question 2

Given PUS and YUS

A) An increase in the European money supply causes the euro to appreciate against the dollar, but it does not disturb the U.S. money market equilibrium.
B) An increase in the European money supply causes the euro to appreciate against the dollar, and it creates excess demand for dollars in the U.S. money market.
C) An increase in the European money supply causes the euro to depreciate against the dollar, and it creates excess demand for dollars in the U.S. money market.
D) An increase in the European money supply causes the euro to depreciate against the dollar, but it does not disturb the U.S. money market equilibrium.
E) An increase in the European money supply causes the euro to depreciate against the dollar, and disturbing the U.S. money market equilibrium.