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 real GDP and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. Real GDP rises, and nominal value of the domestic currency rises.
b. Real GDP rises, and nominal value of the domestic currency falls.
c. Real GDP rises, and nominal value of the domestic currency remains the same.
d. Real GDP falls, and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.A
You might also like to view...
The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________
A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease
Other things equal, the supply of labor will be lower to a job that
a. offers more prestige b. offers valuable on-the-job training c. requires advanced skills or education d. provides a climate-controlled work environment e. allows for flexible work schedules
If the demand for milk is downward sloping, then an increase in the price of milk will result in a(n): a. increase in the demand for milk
b. decrease in the demand for milk. c. increase in the quantity of milk demanded. d. decrease in the quantity of milk demanded.
In a price-leadership oligopoly, it is much simpler for the price leader to identify its dominant strategy when
a. at least one price follower has a terminal strategy b. it expects competition from the other firms c. it expects other firms to match its prices d. the government actively seeks antitrust penalties e. price equals marginal cost