Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The GDP Price Index falls, and reserve-related (central bank) transactions become more negative (or less positive).
b. The GDP Price Index falls, and reserve-related (central bank) transactions remain the same.
c. The GDP Price Index and reserve-related (central bank) transactions remain the same.
d. The GDP Price Index rises, and reserve-related (central bank) transactions remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.D
You might also like to view...
How does innovation differ from invention? Why is innovation required for economic growth?
What will be an ideal response?
If Mary prefers bananas to plums and plums to peaches, but is indifferent between bananas and oranges, she
A. prefers plums to oranges. B. prefers oranges to peaches. C. is indifferent between oranges and plums. D. is indifferent between oranges and peaches.