Assume that business investment spending rises, and the increase is funded by greater borrowing in the capital markets. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the nominal exchange rate and monetary base in the context of the Three-Sector-Model?
a. The nominal exchange rate rises and monetary base rises.
b. The nominal exchange rate remains the same and monetary base falls.
c. The nominal exchange rate remains the same and monetary base rises.
d. The nominal exchange rate and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 2
If there is an improvement in technology that affects only Aggregate Supply and a nation's wealth falls due to a sagging stock market, then:
a. Price index rises, and the change in real GDP is uncertain.
b. Price index falls, and real GDP rises.
c. Price index falls, and the change in real GDP is uncertain.
d. Price index falls, and real GDP falls.
e. The change in price index is uncertain, and real GDP rises.
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