Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and current international transactions in the context of the Three-Sector-Model?
a. The GDP Price Index rises, and current international transactions become more negative (or less positive).
b. There is not enough information to determine what happens to these two macroeconomic variables.
c. The GDP Price Index rises, and current international transactions become more positive (or less negative).
d. The GDP Price Index and current international transactions remain the same.
e. The GDP Price Index falls, and current international transactions become more negative (or less positive).
.A
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