Which of the following would not be a consequence of an increase in the U.S. government budget deficit?
A)The U.S. trade balance rises.
B)The U.S. interest rate rises.
C)Domestic investment in the U.S. falls.
D)The real exchange rate of the U.S. dollar appreciates.

Question

Quizplus · Accepted Answer

An increase in the government budget deficit would lead to a higher demand for funds, causing interest rates to rise, which would lead to a fall in domestic investment. Moreover, the real exchange rate of the U.S. dollar would depreciate as a result of the increased demand for foreign currency. However, the U.S. trade balance would not necessarily rise, as this would depend on a variety of other factors, such as the exchange rate, the price of exports and imports, and the level of foreign demand for U.S. goods and services.

Which of the Following Would Not Be a Consequence of an Increase