Assume that business investment spending rises, and the increase is funded by greater borrowing in the capital markets. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to real GDP and the monetary base in the context of the Three-Sector-Model?
a. Real GDP rises and monetary base rises
b. Real GDP rises and monetary base falls.
c. Real GDP and monetary base fall.
d. Real GDP and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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