Assume that the central bank increases the reserve requirement. If the nation has low mobility 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?
a. The GDP Price Index falls, and nominal value of the domestic currency falls.
b. The GDP Price Index falls, and nominal value of the domestic currency rises.
c. The GDP Price Index falls, and nominal value of the domestic currency remains the same.
d. The GDP Price Index rises, and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
.B
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