Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and nominal value of the domestic currency falls.
b. The real risk-free interest rate falls and nominal value of the domestic currency remains the same.
c. The real risk-free interest rate rises and nominal value of the domestic currency remains the same.
d. The real risk-free interest rate rises and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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Answer the following statement true (T) or false (F)
Which of the following statements best describes financial instruments?
A. Financial instruments can transfer resources between people but not risk. B. Financial instruments can transfer risk but not resources between people. C. All financial instruments are a means of payment. D. Financial instruments can transfer resources and risk between people.
When is policy convergence, also known as Downsian policy convergence, likely to occur among political parties?
What will be an ideal response?
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A) 2.5. B) 2.8. C) 2.0. D) 0.7.