When foreign residents buy U.S. Treasury securities to finance the budget deficit
A)we can also anticipate an increase in the trade deficit.
B)we can also anticipate a decrease in the trade deficit.
C)the trade deficit will not be affected.
D)the public debt will be reduced.

Question

Quizplus · Accepted Answer

When foreign residents buy U.S. Treasury securities, they are investing in the U.S., which increases the capital account surplus. This often leads to an appreciation of the U.S. dollar, making U.S. exports more expensive and imports cheaper, thus increasing the trade deficit.

When Foreign Residents Buy U