What impact might an increase in the budget deficit have on interest rates and exchange rates?
A)Interest rates and exchange rates increase.
B)Interest rates increase and exchange rates decrease.
C)Interest rates decrease and exchange rates increase.
D)Interest rates and exchange rates decrease.

Question

Quizplus · Accepted Answer

An increase in the budget deficit can lead to higher interest rates as the government borrows more, increasing demand for loanable funds. This can attract foreign capital, leading to an appreciation of the exchange rate.

What Impact Might an Increase in the Budget Deficit Have