Which of the Following Accurately Describes of the Effect of the Government

Multiple Choice

Which of the following accurately describes of the effect of the government budget deficit on the open economy?

A) Real interest rates fall, which encourages domestic investment; the currency appreciates pushing the trade balance toward deficit.
B) Real interest rates rise, which causes crowding out of domestic investment; the currency appreciates pushing the trade balance toward deficit.
C) Real interest rates fall, which encourages domestic investment; the currency depreciates pushing the trade balance toward surplus.
D) Real interest rates rise, which causes crowding out of domestic investment; the currency depreciates pushing the trade balance toward surplus.