Author Question: The sale of Treasury securities by the Federal Reserve will, in general A) not change the ... (Read 88 times)

darbym82 · **on:** Jun 29, 2018

The sale of Treasury securities by the Federal Reserve will, in general

A) not change the quantity of reserves held by banks.
B) decrease the quantity of reserves held by banks.
C) increase the quantity of reserves held by banks.
D) not change the money supply.

Question 2

Why is the balance of payments always zero?

What will be an ideal response?

tofugiraffe · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

If a country spends more on goods and services and other items in the current account than it receives, it must have received the income needed to buy those items from investments from foreigners. In other words, a current account deficit must be offset by a surplus in the financial account. Apart from measurement errors, the sum of the current account and the financial account must equal zero. Therefore, the balance of payments must also equal zero.