Unformatted text preview: • There is a relationship between government budget deficits and the trade deficit. The budget deficit raises interest rates. Higher interest rates attract foreign investors, but to invest here they need dollars. The resulting higher demand for dollars raises the exchange rate value of the dollar. A stronger dollar makes U.S. products more expensive for foreign buyers and foreign products cheaper to American buyers. So, we export less and import more. The result is a bigger trade deficit. • The idea behind immiserizing growth is that if a country experiences growth in its export sector, the resulting increase in supply will push down the price of its exports. Even though it is exporting a larger quantity, the price might fall so much that its revenues for exports will be smaller than before....
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.
- Fall '09
- Personal Finance