If the value of the domestic currency depreciates:
a. Aggregate demand rises, but aggregate supply does not change.
b. Aggregate demand falls and aggregate supply rises.
c. Aggregate demand rises and aggregate supply rises.
d. Neither aggregate demand nor aggregate supply change.
e. Aggregate demand rises and aggregate supply falls.
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 quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises and nominal value of the domestic currency falls.
b. The quantity of real loanable funds per time period falls and nominal value of the domestic currency remains the same.
c. The quantity of real loanable funds per time period rises and nominal value of the domestic currency remains the same.
d. The quantity of real loanable funds per time period falls and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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