How Does a Budget Deficit Lead to a Trade Deficit

question 205

Multiple Choice

How does a budget deficit lead to a trade deficit?

• A)The trade deficit triggers higher interest rates, which increase the budget deficit.
• B)The budget deficit leads to higher interest rates and exchange rates, which shrink net exports.
• C)The trade deficit causes lower interest rates, which leads to economic recession and a budget deficit.
• D)The budget deficit causes lower exchange rates, which decrease net exports.

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Definitions:

Peristalsis

The involuntary constriction and relaxation of the muscles in the intestine or another canal, creating wave-like movements that push contents forward.

Anemia

A condition in which there is a deficiency of red cells or of hemoglobin in the blood, leading to fatigue, weakness, and shortness of breath.

Hemoglobin and Hematocrit

Hemoglobin is a protein in red blood cells carrying oxygen, whereas hematocrit is the ratio of the volume of red cells to the total volume of blood.

Total Bilirubin

A measure of all the bilirubin in the blood, indicating liver function and helping to detect jaundice or other liver-related diseases.