Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real GDP and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. There is not enough information to determine what happens to these two macroeconomic variables.
b. Real GDP rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
c. Real GDP rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
d. Real GDP falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
e. Real GDP and net nonreserve-related international borrowing/lending remain the same.
.B
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