Refer to Figure 15-10. In the figure above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Among the following people, who earns a profit?

a. a construction worker who would work for $40 per hour but actually earns $50 per hour b. a heart surgeon who earns $400,000 a year c. an entrepreneur who earns $25,000 a year d. a land owner who receives $600 per acre for the 1,000 acres he owns e. a homemaker whose work is valued at $100,00 a year even though she earns $0

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 quantity of real loanable funds per time period and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?

a. The quantity of real loanable funds per time period rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive). b. There is not enough information to determine what happens to these two macroeconomic variables. c. The quantity of real loanable funds per time period falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative). d. The quantity of real loanable funds per time period and net nonreserve-related international borrowing/lending remain the same. e. The quantity of real loanable funds per time period rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).