Which of the following is inaccurate:
a. The monetary base rises only if the central bank's assets rise.
b. The monetary base rises if the central bank lowers the reserve ratio.
c. An increase in government spending does not affect the monetary base.
d. Foreign exchange transactions between domestic and foreign banks do not affect a nation's monetary base.
Question 2
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 GDP Price Index and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The GDP Price Index falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
b. The GDP Price Index and net nonreserve-related international borrowing/lending remain the same.
c. The GDP Price Index falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
d. The GDP Price Index rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
e. The GDP Price Index rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
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