A nation's country-risk premium increases if:
a. Large corporations, on average, increase their debt-to-equity ratios, thereby making their operations more volatile.
b. Expected inflation becomes harder to predict.
c. The average maturity structure in the nation rises.
d. All of the above.
e. Central bank policies become more predictable.
Question 2
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 real GDP and the nominal value of the domestic currency in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium.
a. Real GDP rises and nominal value of the domestic currency falls.
b. Real GDP falls and nominal value of the domestic currency remains the same.
c. Real GDP and nominal value of the domestic currency remain the same.
d. Real GDP rises and nominal value of the domestic currency remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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