An increase in the budget deficit
A)raises net exports and domestic investment.
B)raises net exports and reduces domestic investment.
C)reduces net exports and raises domestic investment.
D)reduces net exports and domestic investment.

Question

Quizplus · Accepted Answer

An increase in the budget deficit typically leads to higher interest rates, which can reduce domestic investment and make the domestic currency stronger, thus reducing net exports.

An Increase in the Budget Deficit