Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real GDP and the nominal value of the domestic currency in the context of the Three-Sector-Model?

a. Real GDP rises, and nominal value of the domestic currency falls.
b. Real GDP falls, and nominal value of the domestic currency rises.
c. Real GDP rises, and nominal value of the domestic currency remains the same.
d. Real GDP rises, and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.

.A