Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible 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.
.A
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When can two countries gain from trading two goods?
a. when the first country can only produce the first good and the second country can only produce the second good
b. when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost
c. when the first country is better at producing both goods and the second country is worse at producing both goods
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