Suppose that the government of Syria raises its budget deficit.The real exchange rate of the Syrian pound would

Question

Quizplus · Accepted Answer

When the government of Syria raises its budget deficit, it is likely to increase its demand for goods and services, which in turn will increase the demand for foreign goods and services. This increased demand for foreign goods and services will lead to an increase in the supply of Syrian pounds in the foreign exchange market, causing a depreciation of the Syrian pound against other currencies. A depreciation of the Syrian pound will make Syrian goods relatively cheaper and foreign goods relatively more expensive, which will reduce Syrian net exports. Therefore, the correct answer is D.

Suppose That the Government of Syria Raises Its Budget Deficit