A government began 2013 with a budget deficit and a trade deficit. During the year, the government changed its policy and is now running a budget surplus. If all other factors hold constant, this change in policy will cause:

A. the exchange rate to decrease and the trade deficit to increase.
B. the exchange rate to increase and the trade deficit to decrease.
C. the exchange rate and the trade deficit to decrease.
D. the exchange rate and the trade deficit to increase.


Answer: C. the exchange rate and the trade deficit to decrease.

Economics

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