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 GDP Price Index and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The GDP Price Index

rises and nominal value of the domestic currency remains the same.
b. The GDP Price Index falls and nominal value of the domestic currency remains the same.
c. The GDP Price Index and nominal value of the domestic currency remain the same.
d. The GDP Price Index falls and nominal value of the domestic currency falls.
e. There is not enough information to determine what happens to these two macroeconomic variables.


.B

Economics

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