question archive If in an open economy, a country imports more than it exports and the government budget deficit increases: a) Interest rates will increase and the amount of borrowing will increase, b) Interest rates will decrease and the amount of borrowing will increase, c) Interest rates will increase, but the change in borrowing is ambiguous, d) The change in interest rates is ambiguous, but the amount of borrowing will increase, e) Both the change in interest rates and the amount of borrowing are ambiguous
If in an open economy, a country imports more than it exports and the government budget deficit increases: a) Interest rates will increase and the amount of borrowing will increase, b) Interest rates will decrease and the amount of borrowing will increase, c) Interest rates will increase, but the change in borrowing is ambiguous, d) The change in interest rates is ambiguous, but the amount of borrowing will increase, e) Both the change in interest rates and the amount of borrowing are ambiguous
Subject:EconomicsPrice:2.88 Bought3
If in an open economy, a country imports more than it exports and the government budget deficit increases:
a) Interest rates will increase and the amount of borrowing will increase,
b) Interest rates will decrease and the amount of borrowing will increase,
c) Interest rates will increase, but the change in borrowing is ambiguous,
d) The change in interest rates is ambiguous, but the amount of borrowing will increase,
e) Both the change in interest rates and the amount of borrowing are ambiguous.
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Answer:A
Increasing the budget deficit directly leads to more borrowing by the government (increased demand for private funds) which pushes interest rates up as a result. This also leads to the currency appreciating.
