Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to real GDP and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. Real GDP falls, and nominal value of the domestic currency rises.
b. Real GDP falls, and nominal value of the domestic currency remains the same.
c. Real GDP rises, and nominal value of the domestic currency rises.
d. Real GDP falls, and nominal value of the domestic currency falls.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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