Assuming that the government can act immediately before the multiplier takes effect, then to offset an increase in investment by $1 billion, government purchases must be:
A. decreased by $2 billion.
B. increased by $1 billion.
C. decreased by $1 billion.
D. decreased by $0.5 billion.
Answer: C
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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 quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model?
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