From 2001 to 2004 the U.S.budget went from surplus to deficit.This should have
A)increased U.S.interest rates and increased the real exchange rate of the dollar.
B)increased U.S.interest rates and decreased the real exchange rate of the dollar.
C)decreased U.S.interest rates and increased the real exchange rate of the dollar.
D)decreased U.S.interest rates and decreased the real exchange rate of the dollar.

Question

Quizplus · Accepted Answer

A budget deficit typically leads to higher interest rates as the government borrows more, and increased demand for the dollar can raise its real exchange rate.