Assume that business investment spending rises, and the increase is funded by greater borrowing in the capital markets. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the nominal exchange rate and monetary base in the context of the Three-Sector-Model?
a. The nominal exchange rate rises and monetary base rises
b. The nominal exchange rate remains the same and monetary base falls.
c. The nominal exchange rate remains the same and monetary base rises.
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.
.B
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If the opportunity cost of manufacturing machinery is higher in the United States than in Britain and the opportunity cost of manufacturing sweaters is lower in the United States than in Britain, then the United States will:
A) export both sweaters and machinery to Britain. B) import both sweaters and machinery from Britain. C) export sweaters to Britain and import machinery from Britain. D) import sweaters from Britain and export machinery to Britain.