Answer to Question #270007 in Macroeconomics for Khanyisa

Question

Distinguish between active balances and passive balances and mention the main determinant of each.

Answer 1

Solution:

Active balance refers to the balance held for the function of money as a means of payment. Active balance is also called 'transaction' and 'precautionary' balances. Active balance determinants can be linked to factors such as fiscal balance, growth, and trade terms.

 

Passive balances are highly liquid financial assets, domestic money, or foreign currency that are not determined by real transactions like trade or consumption expenditure.

Passive balance determinants is the speculative demand for money.