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 GDP Price Index and reserves account in the context of the Three-Sector-Model?
a. The GDP Price Index falls and reserves account becomes more positive (or less negative)

b. The GDP Price Index falls and reserves account remains the same.
c. The GDP Price Index and reserves account remain the same.
d. The GDP Price Index rises and reserves account remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.


.A

Economics

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