If a country raises its budget deficit, the net capital outflow
A)rises, so the supply of its currency shifts right in the market for foreign currency exchange.
B)rises, so the demand for its currency shifts right in the market for foreign currency exchange.
C)falls, so the supply of its currency shifts left in the market for foreign currency exchange.
D)falls, so the demand for its currency shifts right in the market for foreign currency exchange.

Question

Quizplus · Accepted Answer

When a country raises its budget deficit, it often borrows more from abroad, reducing net capital outflow. This decrease in net capital outflow means there is less of the country's currency being supplied in the foreign exchange market, causing the supply curve to shift left.

If a Country Raises Its Budget Deficit, the Net Capital