Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and current international transactions in the context of the Three-Sector-Model?

a. The GDP Price Index falls, and current international transactions become more negative (or less positive).
b. The GDP Price Index and current international transactions remain the same.
c. The GDP Price Index rises, and current international transactions remain the same.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The GDP Price Index rises, and current international transactions become more positive (or less negative).


.E

Economics

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