Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and current international transactions balance in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls and current
international transactions balance becomes more negative (or less positive).
b. The real risk-free interest rate rises and current international transactions balance becomes more negative (or less positive).
c. The real risk-free interest rate and current international transactions balance remain the same.
d. The real risk-free interest rate rises and current international transactions balance remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
You might also like to view...
A game in economics is defined as
A) something that is shown on ESPN. B) competition in which strategic decision making is integral. C) competition in general. D) an actual strategy chosen by one or more economic agents.
On average each year, about 7 percent of all firms in the United States are new and 1 percent go out of business. According to the text, luck may play a role. Which of the following reasons for failure might be attributable to luck?
A) An individual undertakes a very risky venture so that his product is first to market. B) An executive fails to undertake an investment that would have yielded great success. C) An executive focuses on the incorrect objective. D) An executive undertakes an investment just prior to a major natural catastrophe that destroys the firm's assets. E) An executive fails to perceive what customers really want.