Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and current international transactions in the context of the Three-Sector-Model?
a. The GDP Price Index rises, and current international transactions become more negative (or less positive).
b. There is not enough information to determine what happens to these two macroeconomic variables.
c. The GDP Price Index rises, and current international transactions become more positive (or less negative).
d. The GDP Price Index and current international transactions remain the same.
e. The GDP Price Index falls, and current international transactions become more negative (or less positive).
.A
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Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar. If interest rates in the United States increase and interest rates in Europe remain unchanged then
A) the demand for dollars will increase. B) the demand for dollars will decrease. C) the demand for euros will increase. D) None of the above answers is correct.
If consumer income and prices increase by the same percentage,
A) the consumer will buy more of both goods. B) the consumer will buy more of both goods if they are both normal goods. C) the consumer will buy less of both goods if they are both inferior goods. D) the consumer's utility maximizing bundle stays the same.