Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The GDP Price Index falls, and reserve-related (central bank) transactions remain the same.
b. The GDP Price Index falls, and reserve-related (central bank) transactions become more negative (or less positive).
c. The GDP Price Index and reserve-related (central bank) transactions remain the same.
d. The GDP Price Index rises, and reserve-related (central bank) transactions become more positive (or less negative).
e. The GDP Price Index rises, and reserve-related (central bank) transactions remain the same.
.A
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