Question

In the 1980s, the U.S. government budget deficit rose. At the same time the U.S. trade deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net capital outflow decreased. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit? The U.S. trade deficit grew. The real exchange rate of the dollar appreciated. U.S. net capital outflow fell. None of the above is contrary to the predictions of the model.

Answer 1

Answer:

None of the above is contrary to the predictions of the model.

Explanation:

The budget deficit is when the government spends more than the revenue it makes. Based on the information given, the trade deficit of the United States will grow.

Furthermore, the real exchange rate of the dollar will appreciate and the net capital outflow of the United States will fall as imports will be more than goods exported.

Therefore, the correct option is "None of the above is contrary to the predictions of the model".