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 current international transactions in the context of the Three-Sector-Model?
a. Real GDP rises, and current international transactions become more negative (or less positive).
b. Real GDP and current international transactions remain the same.
c. There is not enough information to determine what happens to these two macroeconomic variables.
d. Real GDP falls, and current international transactions become more negative (or less positive).
e. Real GDP rises, and current international transactions remain the same.
.A
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