Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and nominal value of the domestic currency falls.
b. There is not enough information to determine what happens to these two macroeconomic variables.
c. The real risk-free interest rate rises, and nominal value of the domestic currency falls.
d. The real risk-free interest rate rises, and nominal value of the domestic currency rises.
e. The real risk-free interest rate rises, and nominal value of the domestic currency remains the same.
.D
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In the above figure, which movement illustrates the impact of the price level and money wage rate falling at the same rate?
A) E to H B) E to K C) E to J D) E to G
(Consider This) What is the difference between financial investment and economic investment?
A. There is no difference between the two. B. Financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods. C. Economic investment is adjusted for inflation; financial investment is not. D. Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.