Suppose the government of Russia runs a budget deficit. This will result in:

A. a decrease in interest rates in Russia and a decrease in the value of the ruble relative to other currencies.

B. an increase in interest rates in Russia and an increase in the value of the ruble relative to other currencies.

C. a decrease in interest rates in Russia and an increase in the value of the ruble relative to other currencies.

D. an increase in interest rates in Russia and a decrease in the value of the ruble relative to other currencies.

Question

Nigel Forbes

Business

8 January, 14:10

Suppose the government of Russia runs a budget deficit. This will result in:

A. a decrease in interest rates in Russia and a decrease in the value of the ruble relative to other currencies.

B. an increase in interest rates in Russia and an increase in the value of the ruble relative to other currencies.

C. a decrease in interest rates in Russia and an increase in the value of the ruble relative to other currencies.

D. an increase in interest rates in Russia and a decrease in the value of the ruble relative to other currencies.

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Answers (1)

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Osvaldo Krause · Answer 1

D. an increase in interest rates in Russia and a decrease in the value of the ruble relative to other currencies.

Explanation:

In case the government of Russia runs a budget deficit, there will be inflationary pressure because budget deficit will be met by printing of currency. Inflationary pressure will drive interest rate high which will adversely affect the value of currency in international market. So the value of ruble will decrease relative to other currency.

Option D is correct.