Inflation costs are minimized under which inflation rate?

If the demand for the Ford Mustang increases, we would expect Ford to

A) keep the price of Mustangs constant, regardless of the cost or benefit of a price change. B) increase the price of Mustangs to keep pace with the increase in demand. C) increase the price of Mustangs only if the benefit of a price increase outweighs the cost. D) decrease the price of Mustangs to maintain the increase in demand.

Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has highly mobile international capital markets and a flexible 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 and GDP Price Index remain the same. b. The real risk-free interest rate falls, and GDP Price Index falls. c. The real risk-free interest rate falls, and GDP Price Index stays the same. d. The real risk-free interest rate rises, and GDP Price Index falls. e. The real risk-free interest rate rises, and GDP Price Index rises.