The lending ability of the banking system increases if the:
a. Reserve ratio rises.
b. Preferred asset ratio for customary reserves rises.
c. Preferred asset ratio for near money rises.
d. Demand to hold money rises.
e. All of the above.
Question 2
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The GDP Price Index falls, and reserve-related (central bank) transactions become more negative (or less positive).
b. The GDP Price Index falls, and reserve-related (central bank) transactions remain the same.
c. The GDP Price Index and reserve-related (central bank) transactions remain the same.
d. The GDP Price Index rises, and reserve-related (central bank) transactions remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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