If the government of a country with a zero trade balances increases its budget deficit,then interest rates
A)rise and the trade balance moves to a surplus.
B)rise and the trade balance moves to a deficit.
C)fall and the trade balance moves to a surplus.
D)fall and the trade balance moves to a deficit.

Question

Quizplus · Accepted Answer

An increase in the budget deficit typically leads to higher interest rates as the government borrows more, attracting foreign capital and causing the currency to appreciate, which can lead to a trade deficit.

If the Government of a Country with a Zero Trade