If the government of a country with a zero trade balance started with a budget deficit and moved to a surplus,domestic investment would
A)rise and there would be a trade surplus.
B)rise and there would be a trade deficit.
C)fall and there would be a trade surplus.
D)fall and there would be a trade deficit.

Question

Quizplus · Accepted Answer

When the government moves from a budget deficit to a surplus, it reduces its borrowing, which can lead to lower interest rates. This encourages domestic investment to rise. With a zero trade balance initially, the increase in domestic investment can lead to a trade surplus as domestic savings exceed domestic investment needs.

If the Government of a Country with a Zero Trade