Assuming that the increase in the value of the dollar in the foreign exchange market has a greater impact on aggregate demand than on aggregate supply,an increase in the United States budget deficit will raise Real GDP

Question

Quizplus · Accepted Answer

In an open economy, an increase in the budget deficit can lead to higher interest rates, attracting foreign capital and appreciating the dollar, which reduces net exports and dampens aggregate demand. In a closed economy, these external factors are absent, so the increase in aggregate demand from the deficit has a more direct impact on Real GDP.

Assuming That the Increase in the Value of the Dollar