Suppose that the federal budget deficit increases. the increase in government borrowing will cause interest rates to ▼ rise fall. in an open economy, this will make u. s. bonds ▼ more attractive less attractive to overseas residents, who will buy ▼ more less bonds and ▼ less more u. s. exports, and thus the trade deficit will ▼ rise fall.

Question

Yosef Warren

Business

26 August, 07:00

Suppose that the federal budget deficit increases. the increase in government borrowing will cause interest rates to ▼ rise fall. in an open economy, this will make u. s. bonds ▼ more attractive less attractive to overseas residents, who will buy ▼ more less bonds and ▼ less more u. s. exports, and thus the trade deficit will ▼ rise fall.

+2

Answers (1)

Know the Answer?

Levi Burns · Answer 1

Rise; More attractive; More; Less; Rise

Explanation:

Suppose that the federal budget deficit increases.

So, there is a need to borrow funds and this will increase the government borrowings. The higher government borrowings will lead to cause the interest rate to rise.

In an open economy, the buyers in the foreign countries are buying more U. S bonds as they will receive higher rate of return from investing in bonds. Hence, the U. S bonds are becoming more attractive to the foreign buyers because of the higher interest rate.

This will reduce the value of U. S exports, hence, the trade deficit (Value of imports - Value of exports) will rise further.