According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Question

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Moving from a government budget deficit to a government budget surplus would likely decrease U.S. real interest rates due to reduced government borrowing. Lower interest rates could lead to a depreciation of the real exchange rate of the U.S. dollar, as capital flows out in search of higher returns elsewhere.

According to the Open-Economy Macroeconomic Model, If the United States