Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the GDP Price Index and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The GDP Price Index rises and nominal value of the domestic
currency falls.
b. The GDP Price Index falls and nominal value of the domestic currency remains the same.
c. The GDP Price Index rises and nominal value of the domestic currency remains the same.
d. The GDP Price Index rises and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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