Assume that the central bank increases the reserve requirement. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and current international transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and current international transactions become more negative (or less positive).
b. The real risk-free interest rate rises, and current international transactions become more negative (or less positive).
c. The real risk-free interest rate and current international transactions remain the same.
d. The real risk-free interest rate rises, and current international transactions remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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