If a nation experiences severe drought and real risk-free interest rate rises, then:
a. Aggregate demand falls, and aggregate supply rises.
b. Aggregate demand and aggregate supply rise.
c. Aggregate demand and aggregate supply fall.
d. Neither aggregate demand nor aggregate supply change.
e. None of the above.
Question 2 - Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility 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?
a. The real risk-free interest rate falls and current international transactions become more positive (or less negative).
b. The real risk-free interest rate rises and current international transactions become more negative (or less positive).
c. The real risk-free interest rate and current international transactions remain the same.
d. The real risk-free interest rate rises and current international transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 3 - If a nation experiences severe drought and real risk-free interest rate rises, then:
a. Aggregate demand rises, and aggregate supply falls.
b. Aggregate demand rises, but aggregate supply does not change.
c. Aggregate demand falls, and aggregate supply rises.
d. Aggregate demand and aggregate supply rise.
e. Aggregate demand and aggregate supply fall.
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