An increase in a country's budget deficit
A)increases net capital outflow,so the demand for its currency in the market for foreign-currency exchange shifts right.
B)increases net capital outflow,so the supply of its currency in the market for foreign-currency exchange shifts right.
C)decreases net capital outflow,so the demand for its currency in the market for foreign-currency exchange shifts left.
D)decreases net capital outflow,so the supply of its currency in the market for foreign-currency exchange shifts left.

Question

Quizplus · Accepted Answer

An increase in a country's budget deficit typically decreases net capital outflow because the government borrows more, reducing the funds available for foreign investment. This leads to a leftward shift in the supply of its currency in the foreign exchange market.

An Increase in a Country's Budget Deficit