In 2009 Greece's budget deficit rose and people became worried about the ability of the Greek government to make payments on its debt.Which of the these events reduces a country's real exchange rate?

Question

Quizplus · Accepted Answer

Increased concerns about the ability of the government to pay back its debt would lead to a decrease in investor confidence in the country, which would result in a decrease in demand for the country's currency and a decrease in its real exchange rate. An increase in the budget deficit alone may not necessarily lead to a decrease in the real exchange rate, as it depends on the specific policies and actions taken by the government in response to the deficit.

In 2009 Greece's Budget Deficit Rose and People Became Worried