If the U.S. runs a large foreign trade deficit, then the:

Question

Quizplus · Accepted Answer

When a country runs a large foreign trade deficit, it means that it is importing more goods and services than it is exporting. This leads to an increased demand for foreign currency, putting downward pressure on the value of the domestic currency. One way to stem this pressure is for the central bank to raise interest rates, which attracts foreign investment and strengthens the currency. Therefore, the correct answer is B, interest rates will increase. None of the other choices are directly related to a trade deficit.

If the US Runs a Large Foreign Trade Deficit, Then The