Asked by Jocelyn Cooperwood on Jun 23, 2024
Verified
According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.
Government Budget Deficit
The financial situation where a government's expenditures exceed its revenues within a specific period, often leading to borrowing.
Government Budget Surplus
A financial situation in which a government's revenues exceed its expenditures during a specific period of time.
Real Interest Rates
Interest rates adjusted for inflation, showing the real cost of borrowing or the real yield on savings.
- Understand the relationship between government budget balances and real interest rates.
- Analyze the effects of fluctuations in the exchange and interest rates on the open-economy macroeconomic model.
Verified Answer
RS
Rhonda ShipleyJun 24, 2024
Final Answer :
False
Explanation :
Moving from a government budget deficit to a government budget surplus would likely decrease U.S. real interest rates due to reduced government borrowing. Lower interest rates could lead to a depreciation of the real exchange rate of the U.S. dollar, as capital flows out in search of higher returns elsewhere.
Learning Objectives
- Understand the relationship between government budget balances and real interest rates.
- Analyze the effects of fluctuations in the exchange and interest rates on the open-economy macroeconomic model.