Attempt 1 of 2 ) The Impacts of Government Borrowing | Summative Assessment Supp
ID: 1164354 • Letter: A
Question
Attempt 1 of 2 ) The Impacts of Government Borrowing | Summative Assessment Suppose a country is operating near its potential GDP An increase in government spending, without an equivalent increase in tax revenues, is most likely to lead to which of these outcomes? O A sudden outflow of foreign capital O A sharp drop in the value of the country's currency on the foreign exchange market A contractionary monetary policy by the central bank O The onset of a recession K Previous Question 5 of 18 Next Question> SubmitExplanation / Answer
a) An increase in the government expenditure when the economy is close to potential output will cause inflation and an increase in the income of people. It will also increase the imports and outflow of local currency which will lead to a decrease in the value fo currency.
The answer is "B".
b) A depreciating currency improves the deficit and an appreciating currency worsen the trade deficit. The answer is option A and C are correct.
c) "A decrease in the US trade deficit will lead to an appreciation in the US dollar" as the deficit gets lower the currency will appreciate. It is caused because of the inflow of the currency. The answer is B.
d) "C"
It helps the workforce adapt to the need of the economy.
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