Question

43. Chapter ma2pe08r, Section .323, Problem 024 (ID: 024.32.3- MC- MANK08) If a country raises its budget deficit, then net capital outflow ts currency shifts right in the market for fi O a. rises, so the supply of i reign-currency exchange b. rises, so the demand for its currency shifts right in the market for foreign-currency exchange O c. falls, so the supply of its currency shifts left in the market for foreign-currency exchange. d. falls, so the demand for its currency shifts right in the market for foreign-currency exchange

Answer 1

43. If a country raises it's budget deficit, i.e. government spending is greater than government income from taxes, then net capital outflow falls. That means people in that country will supply less of their currency in order to purchase foreign assests. This will shift the supply of it's currency leftward in the market for foreign currency exchange.

Answer: option C