Which of the following would not be a consequence of an increase in the U.S.government budget deficit?
A)the U.S.trade balance rises
B)the U.S.interest rate rises
C)domestic investment in the U.S.falls
D)the real exchange rate of the U.S.dollar appreciates

Question

Quizplus · Accepted Answer

An increase in the U.S. government budget deficit would lead to a decrease in domestic savings, which, in turn, would lead to an increase in domestic borrowing. This increased demand for funds would raise interest rates, which could attract foreign capital inflows and appreciate the exchange rate of the U.S. dollar. These effects would make exports more expensive and imports cheaper, leading to a deterioration in the U.S. trade balance. However, an increase in the U.S. government budget deficit would not directly lead to a rise in the U.S. trade balance; rather, it would likely have the opposite effect.

Which of the Following Would Not Be a Consequence of an Increase