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 quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The quantity of real loanable funds
per time period rises and nominal value of the domestic currency falls.
b. The quantity of real loanable funds per time period falls and nominal value of the domestic currency remains the same.
c. The quantity of real loanable funds per time period rises and nominal value of the domestic currency remains the same.
d. The quantity of real loanable funds per time period 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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