Which of the following explains why a budget deficit can cause a trade deficit?
A) An increase in the budget deficit raises domestic interest rates,resulting in a current account surplus and an appreciation of its currency.
B) An increase in the budget deficit lowers domestic interest rates,resulting in a current account deficit and a depreciation of the currency.
C) An increase in the budget deficit raises domestic interest rates,resulting in a capital account surplus and an appreciation of the currency.
D) An increase in the budget deficit lowers domestic interest rates,resulting in a capital account deficit and a depreciation of the currency.
Correct Answer:
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