Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and real GDP in the context of the Three-Sector-Model? Assume the nominal exchange rate is stated as: (Domestic currency per foreign currency)
a. The real exchange rate rises and monetary base rises.
b. The real exchange rate falls and monetary base falls.
c. The real exchange rate falls and monetary base rises.
d. The real exchange rate and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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a. 1990 b. 1999 c. 2001 d. 2007
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