The nation of Pecunia had a current account deficit of $1 billion and a nonreserve financial account surplus of $500 million in 2021. a) What was the balance of payments of Pecunia in that year? What happened to the country’s net foreign assets? b) Assume that foreign central banks neither buy nor sell Pecunian assets. How did the Pecunian central bank’s foreign reserves change in 2021? How would this official intervention show up in the balance of payments accounts of Pecunia? c) How would your answer to (b) change if you learned that foreign central banks had purchased $600 million of Pecunian assets in 2021? How would these official purchases enter foreign balance of payments accounts? d) Draw up the Pecunian balance of payments accounts for 2021 under the assumption that the event described in (c) occurred in that year.

The nation of Pecunia had a current account deficit of $1 billion and a nonreserve financial account surplus of $500 million in 2021. a) What was the balance of payments of Pecunia in that year? What happened to the country’s net foreign assets? b) Assume that foreign central banks neither buy nor sell Pecunian assets. How did the Pecunian central bank’s foreign reserves change in 2021? How would this official intervention show up in the balance of payments accounts of Pecunia? c) How would your answer to (b) change if you learned that foreign central banks had purchased $600 million of Pecunian assets in 2021? How would these official purchases enter foreign balance of payments accounts? d) Draw up the Pecunian balance of payments accounts for 2021 under the assumption that the event described in (c) occurred in that year.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 8DQ

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