(Table: Mexico's Central Bank Balance Sheet) If the country sells 325 million pesos of foreign assets and reduces domestic credit by 425 million pesos, then:
A) the reserves will be 450 million pesos.
B) the domestic assets will be 1,125 million pesos.
C) the domestic assets will be 1,075 million pesos.
D) the reserves will be 1,075 million pesos.

Question

(Table: Mexico's Central Bank Balance Sheet) If the country sells 325 million pesos of foreign assets and reduces domestic credit by 425 million pesos, then: 
A) the reserves will be 450 million pesos. 
B) the domestic assets will be 1,125 million pesos. 
C) the domestic assets will be 1,075 million pesos. 
D) the reserves will be 1,075 million pesos.

Quizplus · Accepted Answer

If the country sells 325 million pesos of foreign assets and reduces domestic credit by 425 million pesos, then the central bank's foreign assets will decrease by 325 million pesos and domestic credit will decrease by 425 million pesos. This means that the domestic assets will decrease by 750 million pesos (325+425=750). Therefore, the new value for domestic assets will be 1,075 million pesos (1,825-750=1,075). The reserves will remain the same at 450 million pesos. Therefore, the correct choice is C.

(Table: Mexico's Central Bank Balance Sheet) If the Country Sells