Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and current international transactions in the context of the Three-Sector-Model?
a. The GDP Price Index and current international transactions remain the same.
b. The GDP Price Index falls, and current international transactions become more negative (or less positive).
c. The GDP Price Index rises, and current international transactions becomes more negative (or less positive).
d. The GDP Price Index rises, and current international transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 2 - When a 500 check is cleared from Bank A to Bank B, it does not change the money supply, because:
a. Actually, it reduces the money supply.
b. Actually, it increases the money supply.
c. Because one individual's checking deposit falls and another individual's rises.
d. Because funds are transferred from one loan account to another.
e. These funds are temporarily out of circulation until the ultimate owner of the funds deposits them.
Question 3 - Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The GDP Price Index falls, and nominal value of the domestic currency falls.
b. The GDP Price Index falls, and nominal value of the domestic currency remains the same.
c. There is not enough information to determine what happens to these two macroeconomic variables.
d. The GDP Price Index rises, and nominal value of the domestic currency rises.
e. The GDP Price Index falls, and nominal value of the domestic currency rises.
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