If the Treasury Purchases a New Computer System and Pays

question 52

Multiple Choice

If the Treasury purchases a new computer system and pays the computer vendor with a check for $100,000 drawn on the Treasury's account with the Fed,

• A)the reserves of the banking system will fall by $100,000.
• B)the Fed's assets will increase by $100,000.
• C)the Fed's liabilities will increase by $100,000.
• D)the monetary base will increase by $100,000.

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Definitions:

Twin Deficits

Refers to the situation where a country is running both a fiscal deficit (government spending exceeds revenue) and a current account deficit (imports exceed exports).

Budget Deficit

The condition when a government spends more than its income, requiring it to borrow money or accumulate debt to cover the gap.

Trade Deficit

A situation where a country's imports of goods and services exceed its exports, leading to negative balance of trade.

Real Exchange Rate

A measure that adjusts the nominal exchange rate by the relative prices of domestic and foreign goods and services, reflecting the purchasing power of two currencies.