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