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 real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and GDP Price Index falls.
b. The real risk-free interest rate falls, and GDP Price Index rises.
c. The real risk-free interest rate rises, and GDP Price Index falls.
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The real risk-free interest rate and GDP Price Index remain the same.
.B
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