According to the open-economy macroeconomic model, if the U.S. government budget deficit increases, then both U.S. domestic investment and U.S. net capital outflow decrease.

Question

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An increase in the U.S. government budget deficit can lead to higher interest rates, which discourages domestic investment and reduces net capital outflow as foreign investors are attracted to the higher returns in the U.S.

According to the Open-Economy Macroeconomic Model, If the U