Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The GDP Price Index rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
b. The GDP Price Index falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
c. The GDP Price Index falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
d. There is not enough information to determine what happens to these two macroeconomic variables.
e. The GDP Price Index and net nonreserve-related international borrowing/lending remain the same.
.B
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What will be an ideal response?
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