Answer to Question #270100 in Macroeconomics for Dede

Question

Distinguish between active balances and passive balances and mention the main (6)

determinant of each.

Answer 1

The balance retained for the purpose of using money as a means of payment is referred to as the active balance. Balances that are active are also known as 'transaction' and 'precautionary' balances. Factors like fiscal balance, GDP, and trade terms can all be connected to active balance determinants. Passive balances are extremely liquid financial assets, domestic money, or foreign currency that are not influenced by real-world transactions such as trade or consumption. The speculative desire for money is one of the passive balance determinants.