Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real GDP and current international transactions balance in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium
a. Real GDP remains the same and current international transactions balance becomes more negative (or less positive).
b. Real GDP rises and current international transactions balance becomes more negative (or less positive).
c. Real GDP and current international transactions balance remain the same.
d. Real GDP rises and current international transactions balance remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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In the figure above, if the interest rate is 8 percent, people demand $0.1 trillion
A) less money than the quantity supplied and the interest rate will rise. B) less money than the quantity supplied and the interest rate will fall. C) more money than the quantity supplied and the interest rate will fall. D) more money than the quantity supplied and the interest rate will rise.
“Don’t put all your eggs in one basket.” Interpret in terms of economic concepts.
What will be an ideal response?