In the 1980s,the U.S.government budget deficit rose.At the same time the U.S.trade deficit grew larger,the real exchange rate of the dollar appreciated,and U.S.net capital outflow decreased.Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?
A)the U.S.trade deficit grew
B)the real exchange rate of the dollar appreciated
C)U.S.net capital outflow fell
D)None of the above is contrary to the predictions of the model.

Question

Quizplus · Accepted Answer

The open-economy macroeconomic model predicts that an increase in the budget deficit leads to a decrease in national saving, which reduces net capital outflow, causes the real exchange rate to appreciate, and results in a larger trade deficit. Therefore, none of the events listed are contrary to the model's predictions.