In an open economy like Canada's,a policy-induced increase in the government's budget deficit tends to

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An increase in the government's budget deficit leads to an increase in demand for loanable funds, which raises the interest rates. As a result, foreign investors will be attracted to invest in Canada, leading to an increase in the demand for Canadian dollars and the appreciation of the currency. However, the increase in interest rates also leads to a decrease in net exports as it results in a stronger currency, making exports more expensive and imports cheaper. This means that an increase in the government's budget deficit tends to attract foreign capital and crowd out net exports.

In an Open Economy Like Canada's,a Policy-Induced Increase in the Government's