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 low mobility international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and GDP Price Index in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period falls, and GDP Price Index rises.
b. The quantity of real loanable funds per time period falls, and GDP Price Index falls.
c. The quantity of real loanable funds per time period rises, and GDP Price Index falls.
d. The quantity of real loanable funds per time period falls, and GDP Price Index remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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