In the real loanable funds market, the vertical and horizontal axes, respectively, are:
a. Nominal interest rate and nominal loanable funds.
b. Real interest rate and real loanable funds.
c. Real, risk-free interest rate and real loanable funds per time period.
d. Real, risk-free interest rate and real loanable funds.
e. None of the above.
Question 2
Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. 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 monetary base in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls and monetary base falls.
b. The real risk-free interest rate rises and monetary base falls.
c. The real risk-free interest rate and monetary base remain the same.
d. The real risk-free interest rate falls and monetary base rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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