A deficit in our balance of payments causes the dollar to __________, which causes the deficit to __________.
A) appreciate; increase
B) appreciate; decrease
C) depreciate; increase
D) depreciate; decrease

Question

Quizplus · Accepted Answer

A deficit in the balance of payments typically leads to a depreciation of the currency, as the demand for foreign currency increases relative to the domestic currency. This depreciation makes domestic goods cheaper for foreigners and foreign goods more expensive for domestic consumers, which can help reduce the deficit by boosting exports and reducing imports.

A Deficit in Our Balance of Payments Causes the Dollar