According to the open-economy macroeconomic model, if Canada moved from a government budget deficit to a government budget surplus, Canadian real interest rates would increase and the real exchange rate of the Canadian dollar would appreciate.

Question

Quizplus · Accepted Answer

Moving from a government budget deficit to a surplus typically reduces interest rates because the government demands fewer loanable funds, which can lead to a depreciation of the real exchange rate due to lower inflows of foreign capital seeking higher returns.

According to the Open-Economy Macroeconomic Model, If Canada Moved from a Government