The sequence of events following an increase in the federal deficit would be higher interest rates, a(n)
A)depreciating dollar, and a larger current account deficit.
B)depreciating dollar, and a smaller current account deficit.
C)appreciating dollar, and a larger current account deficit.
D)appreciating dollar, and a smaller current account deficit.

Question

Quizplus · Accepted Answer

An increase in the federal deficit typically leads to higher interest rates as the government borrows more. Higher interest rates attract foreign capital, leading to an appreciating dollar. An appreciating dollar makes imports cheaper and exports more expensive, worsening the current account deficit.

The Sequence of Events Following an Increase in the Federal