Assume that the central bank purchases government securities in the open market. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and current international transactions in the context of the Three-Sector-Model?
a. There is not enough information to determine what happens to these two macroeconomic variables.
b. The real risk-free interest rate falls, and current international transactions become more positive (or less positive).
c. The real risk-free interest rate rises, and current international transactions remain the same.
d. The real risk-free interest rate rises, and current international transactions become more positive (or less negative).
e. The real risk-free interest rate and current international transactions remain the same.
.B
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The self-correcting tendency of the economy means that rising inflation eventually eliminates:
A. unemployment. B. exogenous spending. C. recessionary gaps. D. expansionary gaps.
A positive externality is one in which there is an external benefit bestowed on a third party>
a. True b. False
The slope of the immediate-short-run aggregate supply curve is based on the assumption that:
A. input prices are fixed, but output prices are flexible. B. input prices are flexible, but output prices are fixed. C. neither input nor output prices are fixed. D. both input and output prices are fixed.
The persistent U.S. trade deficit with Japan is
a. surprising because one would expect that bilateral trade between two countries with flexible exchange rates would be in balance. b. surprising because the Japanese are high cost producers of many goods that are purchased in large quantities by U.S. consumers. c. not surprising because there is no reason why bilateral trade between two countries should be in balance. d. proof that the trade practices of the Japanese are unfair toward the United States.