A central bank has the most control over:
a. A nation's preferred asset ratios.
b. The monetary base.
c. The real exchange rate.
d. The velocity of money.
e. The M2 money supply.
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 real GDP and current international transactions in the context of the Three-Sector-Model?
a. Real GDP falls, and current international transactions become more negative (or less positive).
b. Real GDP rises, and current international transactions become more negative (or less positive).
c. Real GDP and current international transactions remain the same.
d. Real GDP rises, and current international transactions remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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