Central banks get the purchasing power to buy government securities by:
a. Making discount loans to banks.
b. Taking loans from the government.
c. Increasing their liabilities in the form of deposits from banks.
d. All of the above.
e. None of the above.
Question 2
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
b. The quantity of real loanable funds per time period rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
c. The quantity of real loanable funds per time period falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
d. The quantity of real loanable funds per time period and net nonreserve-related international borrowing/lending remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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