Which list contains only things that decrease when the budget deficit of the Canadian government increases?
A) Canadian net exports, national saving, and net capital outflow
B) Canadian supply of loanable funds, the real exchange rate of the dollar, and domestic investment
C) Canadian imports, interest rates, and the real exchange rate of the dollar
D) interest rate, net exports, and the quantity demanded for loanable funds for domestic investment

Question

Quizplus · Accepted Answer

When the Canadian government's budget deficit increases, it borrows more, reducing national saving. This leads to a decrease in the supply of loanable funds, increasing interest rates, which appreciates the Canadian dollar, making Canadian goods more expensive abroad and reducing net exports. Net capital outflow also decreases as investments from abroad become less attractive compared to domestic investments.

Which List Contains Only Things That Decrease When the Budget