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Suppose a country has a current account surplus of $8 billion, but a financial account deficit of $5 billion. a) Is its balan

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Answer #1

A - Balance of payment is in Surplus

Surplus = $8 billion - $ 5 billion

= $ 3 billion

B - Official reserves will increase by $3 billion because of the trade surplus

C - The central bank is buying currency because the reserves are increasing and not decreasing.

D - The increase in reserves of foreign currency will increase the monetary base.

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