If the money supply rises by 8 and the average price level rises by 8, then the supply and demand for real loanable funds change as follows:
a. Actually, neither real supply nor real demand changes.
b. Real supply rises by 8 and real demand remains the same.
c. Real demand rises by 8 and real supply remains the same.
d. Real demand and supply rise by 8.
e. Real supply rises, falls, or stays the same depending on the relationship between actual and expected inflation.
Question 2
Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the current international transactions balance and monetary base in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium.
a. The current international transactions balance rises and monetary base rises.
b. The current international transactions balance rises and monetary base falls.
c. The current international transactions balance and monetary base fall.
d. The current international transactions balance and monetary base remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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