You may assume that there are open capital

markets, and that prices are sticky in the short run but perfectly flexible in the long run. For full

marks, be sure to label any diagrams clearly and completely.

5. (15 points)

For each of the following transactions, report the associated changes in the appropriate

U.S. balance of payments account.

a) A Canadian firm purchases $1 million of software from Microsoft. It pays with a cashier's

check from BMO, a Canadian bank.

b) A U.S. citizen sends $100 in cash to a friend in Denmark for their birthday.

c) Morgan Stanley receives $20,000 of U.S. T-bills from a French bank in exchange for

$15,000 of Google stock and $5,000 worth of consulting services.