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 real GDP and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. Real GDP rises, and reserve-related (central bank) transactions become more positive (or less negative).
b. Real GDP rises, and reserve-related (central bank) transactions remain the same.
c. Real GDP and reserve-related (central bank) transactions remain the same.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. Real GDP falls, and reserve-related (central bank) transactions remain the same.
.B
You might also like to view...
Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then
A) prices rise and inflation occurs. B) there is a surplus of loanable funds. C) there is a shortage of loanable funds. D) there is neither a shortage nor surplus of loanable funds.
Aggregate demand in an economy with no government or foreign trade is
A) consumer expenditure plus actual investment. B) consumer expenditure plus planned investment. C) consumer expenditure plus inventory investment. D) consumer expenditure plus fixed investment.