Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The GDP Price Index and net nonreserve-related international borrowing/lending remain the same.
b. The GDP Price Index rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
c. There is not enough information to determine what happens to these two macroeconomic variables.
d. The GDP Price Index falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
e. The GDP Price Index falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
.D
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