Which of the following statements has usually held TRUE about the relationship between the trade deficits and government budget deficits?
A)There is no relationship between trade deficits and budget deficits.
B)There is a positive relationship between trade deficits and budget deficits.
C)There is a negative relationship between trade deficits and budget deficits.
D)A relationship exists only when there is a balanced budget.

Question

Quizplus · Accepted Answer

Historically, there has been a positive relationship between trade deficits and budget deficits. This is because when a country imports more than it exports, it is effectively sending money abroad, which ultimately reduces the amount of money available within the country's economy. This, in turn, can lead to lower tax revenues and higher government spending, resulting in a budget deficit.

Which of the Following Statements Has Usually Held TRUE About