A federal budget deficit ________ interest rates, which ________ exchange rates (foreign currency per domestic currency)and ________ the balance of trade.
A)raises; raises; reduces
B)reduces; raises; reduces
C)raises; reduces; reduces
D)reduces; reduces; raises
E)raises; raises; raises

Question

Quizplus · Accepted Answer

A federal budget deficit raises interest rates due to increased demand for borrowed funds. Higher interest rates attract foreign capital, raising the exchange rate (value of domestic currency). A stronger domestic currency makes exports more expensive and imports cheaper, thus reducing the balance of trade.

A Federal Budget Deficit ________ Interest Rates, Which ________ Exchange

A Federal Budget Deficit Interest Rates, Which Exchange