An increase in the budget deficit causes domestic interest rates
A)and net capital outflow to rise.
B)to rise and net capital outflow to fall.
C)to fall and net capital outflow to rise.
D)and net capital outflow to fall.

Question

Quizplus · Accepted Answer

An increase in the budget deficit typically leads to higher domestic interest rates as the government borrows more, which can crowd out private investment. Higher interest rates make domestic assets more attractive, reducing net capital outflow.

An Increase in the Budget Deficit Causes Domestic Interest Rates