If a Government Increases Its Budget Deficit, Which Statement Would

question 9

Multiple Choice

If a government increases its budget deficit, which statement would best predict the effects?

• A) The real exchange rate appreciates, and the trade balance moves toward surplus.
• B) The real exchange rate appreciates, and the trade balance moves toward deficit.
• C) The real exchange rate depreciates, and the trade balance moves toward surplus.
• D) The real exchange rate depreciates, and the trade balance moves toward deficit.

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Definitions:

Liability

Legal obligations related to finances that a business incurs throughout its operational processes.

Accounting Equation

The fundamental equation of double-entry bookkeeping: Assets = Liabilities + Owner's Equity.

Cash

Money in the form of currency that can include bills, coins, and balances in bank accounts that are readily available for use.

Owner's Capital Account

A financial record that represents the owner's invested capital plus the total earnings minus the withdrawals made by the owner.