CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

The crowding-out effect implies that ______
A. a budget deficit will tend to bring a trade deficit.
B. an expansionary fiscal policy will tend to increase exports.
C. a budget deficit has no link to a trade deficit.
Explanation: Budget deficit and trade deficit tend to be linked: budget deficit -->higher interest rates --> inflow of foreign capital --> dollar appreciation --> decline in net export.

User Contributed Comments 3

User Comment
Leonie Why decline in net export?
hoyleng becuz dollar appreciates n becomes more expensive..US made goods become more expensive thus it reduce the export......
2014 Because crowding out results in high real interest rates, which strengthens currency, strong currency reduces exports and thus leads to trade deficit
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