Assume that the central bank sells government securities in the open market. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and current international transactions in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium.
a. The real risk-free interest rate falls and the current international transactions balance becomes more negative (or less positive).
b. The real risk-free interest rate rises and the current international transactions balance becomes more negative (or less positive).
c. The real risk-free interest rate and the current international transactions balance remain the same.
d. The real risk-free interest rate rises and the current international transactions balance remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 2
Which of the following argued against the Washington Consensus?
a. Dabrowski
b. Kuznets
c. Gerschenkron
d. Stiglitz
e. All of the above
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