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Practice mode Budget Deficits And The Trade Balance

What is the effect of capital flight on a country?

Correct answer D. Increases a country's net exports and decreases its long-run growth path

Explanation

Capital flight raises net capital outflow and depreciates the currency, boosting net exports, but higher interest rates reduce domestic investment and slow long-run growth.

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Question 02 Budget Deficits And The Trade Balance

If Europeans develop a stronger taste for UK-built Hondas, what happens to the pound and UK net exports?

Correct answer D. Appreciate, but the total value of UK net export stays the same

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Question 03 Budget Deficits And The Trade Balance

The EU imposes a quota on clothing imports from China, reducing UK clothing imports. What happens in the market for foreign currency exchange?

Correct answer C. The demand for pounds increases, and the pound appreciates

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