After a loan is made, the:
a. M2 money supply rises until the loan is repaid.
b. M2 money supply rises until the loan is spent.
c. M2 money supply rises until the loan is cleared.
d. M2 money supply does not change until the loan is spent.
e. M2 money supply does not change until the loan is cleared.
Question 2
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and real GDP in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and real GDP rises.
b. The real risk-free interest rate falls, and real GDP rises.
c. The real risk-free interest rate rises, and real GDP falls.
d. The real risk-free interest rate and real GDP remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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