How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?
A)The demand for dollars falls,and the supply of dollars falls.
B)The demand for dollars rises,and the supply of dollars rises.
C)The demand for dollars rises,and the supply of dollars falls.
D)The demand for dollars falls,and the supply of dollars rises.

Question

Quizplus · Accepted Answer

An increase in the budget deficit can lead to higher interest rates, attracting foreign capital, which increases the demand for dollars. However, it does not directly increase the supply of dollars in the foreign exchange market.

How Does an Increase in the Budget Deficit Affect the Demand