Assume that the central bank sells government securities in the open market. If the nation has highly mobile 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? State your answer after the macroeconomic system returns to complete equilibrium

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 falls.
c. The real risk-free interest rate and nominal value of the domestic currency remain 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.


.C

Economics

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