A government began 2013 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause:
A. the exchange rate and the trade deficit to increase.
B. the exchange rate and the trade deficit to decrease.
C. the exchange rate to decrease and the trade deficit to increase.
D. the exchange rate to increase and the trade deficit to decrease.
Answer:A
A government began 2013 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause:
A. the exchange rate and the trade deficit to increase. B. the exchange rate and the trade deficit to decrease. C. the exchange rate to decrease and the trade deficit to increase. D. the exchange rate to increase and the trade deficit to decrease.
Explanation: Type: Multiple Choice