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 real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and GDP Price Index rises
b. The real risk-free interest rate falls and GDP Price Index falls.
c. The real risk-free interest rate rises and GDP Price Index falls.
d. The real risk-free interest rate and GDP Price Index remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
You might also like to view...
How did mortgage defaults affect banks involved in mortgage lending and mortgage investing?
What will be an ideal response?
Refer to the accompanying figure, which shows the annual domestic supply and annual domestic demand for jeans in a small country.
If the world price of a pair of jeans is $40, and this country is open to trade with the rest of the world, then it will ________ pairs of jeans each year.
A. export 4,000 B. import 28,000 C. import 24,000 D. export 24,000