Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the net nonreserve international borrowing/investing balanceand monetary base in the context of the Three-Sector-Model?
a. The net nonreserve international borrowing/investing

balance becomes more positive (less negative) and monetary base rises.
b. The net nonreserve international borrowing/investing balance becomes more negative (less positive) and monetary base falls.
c. The net nonreserve international borrowing/investing balance becomes more negative (less positive) and monetary base falls.
d. The net nonreserve international borrowing/investing balance and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.


.A

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