In a Long-Run Model of a Small Open Economy,deficit Reduction

Multiple Choice

In a long-run model of a small open economy,deficit reduction
I: leads to higher living standards.
II: leads to a fall in the country's real exchange rate once the new full-equilibrium level of foreign debt is reached.

A) I is true; II is not.
B) II is true; I is not.
C) Both I and II are true.
D) Neither I nor II is true.