Are federal budget deficits related to trade deficits?
A) Yes. If U.S. consumers buy too many imported goods they don't have money to save and a budget deficit results.
B) No. The budget deficit is entirely a domestic matter while the trade deficit only affects U.S. citizens who travel abroad.
C) Yes. As deficit spending goes up, it is likely government borrowing will, too. Then foreign residents who lend funds to the U.S. government have less to spend on our goods, so U.S. exports will fall.
D) Yes, but only if the quality of U.S. goods and services is deteriorating.

Question

Quizplus · Accepted Answer

Deficit spending requires the government to borrow money, increasing the amount of foreign investment in the U.S. economy. This increases demand for foreign currencies and can lead to a trade deficit.

Are Federal Budget Deficits Related to Trade Deficits