If foreign residents buy U.S. Treasury securities to finance the budget deficit, then which of the following will likely occur?
A) an increase in the trade deficit
B) a decrease in the trade deficit
C) there will be a trade balance
D) a reduction in the public debt

Question

Quizplus · Accepted Answer

When foreign residents buy U.S. Treasury securities, it means they are supplying their currencies in exchange for dollars to purchase these securities. This increases the demand for dollars, potentially appreciating its value, which can make U.S. exports more expensive and imports cheaper, thus potentially increasing the trade deficit. Additionally, the purchase of Treasury securities does not directly affect the total amount of public debt; it merely changes the holder of the debt.

If Foreign Residents Buy U