Assume that business investment spending rises, and the increase is funded by greater borrowing in the capital markets. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the GDP Price Index and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The GDP Price Index rises and nominal value of the
domestic currency falls.
b. The GDP Price Index falls and nominal value of the domestic currency rises.
c. The GDP Price Index rises and nominal value of the domestic currency remains the same.
d. The GDP Price Index rises and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.C
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