In a World Where Capital Moves Rapidly Across National Boundaries

question 132

Multiple Choice

In a world where capital moves rapidly across national boundaries, if a larger budget deficit leads to higher real interest rates,

• A) there will be an inflow of foreign capital, which will cause the dollar to appreciate and net exports to decline.
• B) there will be an outflow of foreign capital, which will cause the dollar to depreciate and net exports to increase.
• C) there will be an inflow of foreign capital, which will cause the dollar to depreciate and net exports to increase.
• D) there will be an outflow of foreign capital, which will cause the dollar to appreciate and net exports to decline.

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