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 real GDP in the context of the Three-Sector-Model?
a. The nominal exchange rate remains the same and monetary base rises
b. The nominal exchange rate remains the same and monetary base falls.
c. The nominal exchange rate and monetary base fall.
d. The nominal exchange rate and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
You might also like to view...
Those who just stop looking for employment are known as ________
A) cyclically unemployed B) discouraged workers C) frictionally unemployed D) chronically unemployed
In volatile markets, "speculators" would be expected to provide some stability because:
a. they will be required to do so by the government. b. they will use current price moves to predict future moves. c. they will buy when price is below equilibrium and sell when it is above equilibrium. d. they will buy when price is above equilibrium and sell when it is below equilibrium.