a. Explain how a budget deficit might lead to an appreciating currency and a trade deficit. (use foreign exchange market diagram in answer)
b. Explain the introduction of the foreign sector makes the fiscal policy tool of the budget deficit less effective in stimulating the open, as compared to the closed, economy. (Use AD/AS model diagram in answer)
c. According to economists, what is (are) the true cost (s) of a budget deficit. Does the "Opening up" of an economy change the type of costs a deficit produces? (Use investment/savings model to answer)