Assume that foreign capital flows from a nation increase due to political uncertainly and increased risk. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the nominal exchange rate and monetary base in the context of the Three-Sector-Model?
a. The nominal exchange rate rises and monetary base rises
b. The nominal exchange rate falls and monetary base falls.
c. The nominal exchange rate remains the same and monetary base falls.
d. The nominal 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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The expected real interest rate (re) in terms of the nominal interest rate (R) and the expected inflation rate (?e) is given by
A) re = ?e + R. B) re = 2?e + R2. C) re = ?e + R2. D) re = R - ?e. E) re = R2 - ?e.
The idea that the demand for money is a function of both income and wealth is part of whose theory?
A) Baumol and Friedman B) the quantity theorists C) Keynes D) Tobin
If the multiplier equals 2 and the AD shortfall is $6 million, the desired fiscal stimulus is
A. $12 million. B. $333,333. C. $6 million. D. $3 million.
Economists differ in their views of the role of the government in promoting economic growth. A controversial idea is that government should
a. lend support to the invisible hand by maintaining property rights and political stability. b. lower barriers and impediments to free trade. c. encourage capital formation. d. target and subsidize specific industries important for technological progress.