Assume that foreign capital flows from a nation increase due to political uncertainly and increased risk. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the quantity of real loanable funds per time period and current international transactions balance in the context of the Three-Sector-Model?
a. The quantity of real loanable funds
per time period falls and current international transactions balance becomes more positive (or less negative).
b. The quantity of real loanable funds per time period rises and current international transactions balance becomes more negative (or less positive).
c. The quantity of real loanable funds per time period and current international transactions balance remain the same.
d. The quantity of real loanable funds per time period rises and current international transactions balance remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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The equation of exchange
A) is MV = PY. B) becomes the quantity theory if velocity and the price level are constant. C) cannot be used in an economy with inflation. D) All of the above answers are correct.
Using figures for both the short run and the long run, show the effects of a permanent increase in the U.S. money supply. Try to line up your figures to the short and long run equilibria side by side. Assume that the U.S
real national income is constant.