Suppose that the government of Jordan raises its budget deficit. Which statement best predicts the effects of this action?
A) The real exchange rate of the Jordanian dinar would depreciate, and Jordanian net exports would rise.
B) The real exchange rate of the Jordanian dinar would depreciate, and Jordanian net exports would fall.
C) The real exchange rate of the Jordanian dinar would appreciate, and Jordanian net exports would rise.
D) The real exchange rate of the Jordanian dinar would appreciate, and Jordanian net exports would fall.

Question

Quizplus · Accepted Answer

When the government of Jordan raises its budget deficit, it will lead to an increase in demand for goods and services, leading to an increase in imports. As a result, the demand for the Jordanian dinar will decrease, causing the real exchange rate to appreciate, making exports more expensive and less attractive to foreigners. Therefore, Jordanian net exports would fall.

Suppose That the Government of Jordan Raises Its Budget Deficit