According to the open-economy macroeconomic model, which of the following would NOT be a consequence of an increase in the Canadian government budget deficit?
A)Canadian trade balance rises.
B)Canadian net capital outflow falls.
C)Canadian investment abroad decreases.
D)The real exchange rate of the Canadian dollar appreciates.

Question

Quizplus · Accepted Answer

An increase in the Canadian government budget deficit would lead to a decrease in national savings and an increase in interest rates, which would in turn reduce net capital outflow and cause the real exchange rate of the Canadian dollar to depreciate. This would lead to an improvement in the Canadian trade balance, not a rise. Canadian investment abroad may or may not decrease depending on the specific circumstances.

According to the Open-Economy Macroeconomic Model, Which of the Following