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 GDP and reserves account in the context of the Three-Sector-Model?
a. Real GDP falls and reserves account becomes more
negative (or less positive).
b. Real GDP falls and reserves account remains the same.
c. Real GDP and reserves account remain the same.
d. Real GDP rises and reserves account remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
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