Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?

a. The real risk-free interest rate rises and GDP Price Index rises.
b. The real risk-free interest rate falls and GDP Price Index falls.
c. The real risk-free interest rate rises and GDP Price Index falls.
d. The real risk-free interest rate and GDP Price Index remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.


.B

Economics

You might also like to view...

The certainty equivalent of a gamble is negative when tastes are risk loving.

Answer the following statement true (T) or false (F)

Economics

According to Nakamura and Steinsson's research, prices are ________ sticky than Bils and Klenow found because the latter failed to account for ________

A) more; sales B) more; taxes C) less; taxes D) less; sales

Economics

The contention that tariffs should be imposed to protect from import competition an industry that is trying to get started is

A) a basic argument for free trade. B) the infant industry argument. C) dumping. D) a voluntary restraint agreement.

Economics

When the consumption of one good does not preclude another person from consuming the same good, then there is __________ in the consumption of the good

a. nonrivalry b. rivalry c. exclusivity d. nonexclusivity e. merit

Economics