Assume that the central bank purchases government securities in the open market. If the nation has low mobility 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 becomes more positive (or less negative).
b. The GDP Price Index rises, and current international transactions becomes more negative (or less positive).
c. The GDP Price Index and current international transactions remain the same.
d. The GDP Price Index rises, and current international transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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The suggestion that the Fed concentrate only on reducing inflation is an attempt to
a. stabilize the level of unemployment and inflation. b. shift the long-run Phillips curve to the right. c. improve the efficiency of the self-correcting mechanism. d. simplify demand management by focusing on only one goal.
If the risk of holding assets in foreign countries rises relative to the risk of holding U.S assets, then
a. U.S. net capital outflow rises which increases the U.S. exchange rate. b. U.S. net capital outflow rises which decreases the U.S. exchange rate. c. U.S. net capital outflow falls which increases the U.S. exchange rate. d. U.S. net capital outflow falls which decreases the U.S. exchange rate.