Which of the following is the chief link between the U.S.federal budget deficit and the U.S.trade deficit during the 1980s?
A)High U.S.interest rates led to a rise in the relative value of the dollar.
B)High U.S.interest rates led to a decrease in the relative value of the dollar.
C)Higher interest rates resulted in the crowding out of some private investment,reducing the stimulating effect of the government's deficit.
D)The U.S.price level declined relative to that of foreign countries,causing U.S.interest rates to fall.
E)The additional fiscal stimulus provided by a higher government deficit encouraged some firms to invest more.

Question

Quizplus · Accepted Answer

The high U.S. interest rates in the 1980s led to a rise in the relative value of the dollar. This, in turn, made U.S. exports more expensive and imports cheaper, contributing to a widening trade deficit. At the same time, the high interest rates also made it more expensive for the government to finance its deficit, which put pressure on the federal budget. Therefore, the chief link between the U.S. federal budget deficit and the U.S. trade deficit during the 1980s was the high U.S. interest rates, which affected both the value of the dollar and the cost of financing the government deficit.

Which of the Following Is the Chief Link Between the U.S.federal