According to the open-economy macroeconomic model, what 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

According to the open-economy macroeconomic model, an increase in the Canadian government budget deficit would lead to a decrease in Canadian net capital outflow and a decrease in Canadian investment abroad. Additionally, an increase in the budget deficit would lead to a depreciation of the real exchange rate of the Canadian dollar, making Canadian exports more competitive and imports more expensive, which would improve the Canadian trade balance. Therefore, (A) Canadian trade balance rises would not be a consequence of an increase in the Canadian government budget deficit.

According to the Open-Economy Macroeconomic Model, What Would NOT Be