An increase in U.S.federal government budget deficits that raises U.S.interest rates relative to the rest of the world should
A)raise the trade balance.
B)increase net exports.
C)cause the dollar to depreciate.
D)lead to a current account deficit.
E)decrease foreign portfolio investment.

Question

Quizplus · Accepted Answer

An increase in U.S. interest rates relative to the rest of the world makes U.S. assets more attractive, causing an inflow of foreign capital. This results in an increase in the U.S. current account deficit as foreign investment in the U.S. increases, and the U.S. imports more goods than it exports.

An Increase in U