Are federal budget deficits related to trade deficits?
A) Yes. If U.S. consumers buy too many imported goods, they do not have funds 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. Higher deficit spending goes up results in more government borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods.
D) Yes, but only if the quality of U.S. goods and services is deteriorating.

Question

Quizplus · Accepted Answer

When the government raises deficit spending, it must borrow more money. Individual Americans, however, are not likely to hold enough savings to pay for all the government bonds that are issued. Instead, the bonds are sold to foreigners who have extra dollars left over from trade with the U.S. When foreigners buy bonds, the demand for the dollar goes up and the dollar appreciates, making U.S. exports more expensive. Consequently, foreign residents have fewer funds to buy U.S. exporting goods.

Are Federal Budget Deficits Related to Trade Deficits