Author Question: During a period of hyperinflation, as households and firms avoid holding money, A) potential GDP ... (Read 65 times)

folubunmi · **on:** Jun 29, 2018

During a period of hyperinflation, as households and firms avoid holding money,

A) potential GDP increases.
B) long term savings accounts become more popular.
C) barter becomes more common.
D) the costs of inflation decrease.
E) capital investment increases.

Question 2

Why must the current account and the financial account sum to zero? (Assume the capital account is zero.)

What will be an ideal response?

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

Answer to Question 1

C

Answer to Question 2

The current account and the financial account must sum to zero because any excess demand for foreign currency that arises from transactions in goods and services (the current account) must be met by an excess supply of foreign currency arising from asset transactions (the financial account). A current account deficit is offset by a financial account surplus and vice versa.