Suppose That the Canadian Budget Deficit Rises

Multiple Choice

Suppose that the Canadian budget deficit rises. At the same time the Canadian trade deficit grows larger, the real exchange rate of the dollar appreciates, and Canadian net capital outflow decreases. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

A) The Canadian trade deficit grew.
B) The real exchange rate of the dollar appreciated.
C) Canadian net capital outflow fell.
D) The supply of dollars in the foreign exchange market increased.