4. A balance of payments    equilibrium

Outline the structure of the two main accounts of the balance of payments.

Suppose that the demand for real money balances is (M / P)d = 5Y − 20r. If the supply of real balances is 400, and the gross domestic product is 100, then the equilibrium interest rate is:2.5.5.7.5.10.

In a small open economy with a fixed exchange rate, if the central bank decreases the money supply, then in the new short-run equilibrium：A.The exchange rate risesB.income risesC.income fallsD.income remain constant

Balance of Payments The balance of payments is a statement that contains the transactions made by residents of a particular country with the rest of the world over a specific time period. It is also known as the balance of international payments and is often abbreviated as BOP. It summarizes all payments and receipts by firms, individuals and the government. The transactions can be factor payments and transfer payments. Components of Balance of Payments The BOP comprises two accounts: Current and Capital.

Suppose that in a small open economy with perfect capital mobility and a floating exchange rate, the central bank increases the money supply because the economy is in a recession. This will cause the equilibrium income to _____ and the equilibrium exchange rate to _____.decrease; risedecrease; fallincrease; fallincrease; rise