Answer :
If a country raises its budget deficit, then its net capital outflow and net exports fall.
What is budget deficit?
When spending surpass income, a deficit budget is said to have occurred, and it is a sign of sound finances. This phrase is typically used by the government to refer to its expenditures instead of things or people. The national debt is made up of accumulated government deficits.
A budget deficit may result in increased borrowing, greater interest costs, and insufficient reinvestment, all of which reduce revenue for the next year. A budget surplus is the polar opposite of a budget deficit.
Naturally, a stronger exchange rate makes it more challenging for exporters to sell their products overseas while lowering the cost of imports, leading to a trade deficit—or a smaller trade surplus—as a result. A trade deficit, a stronger currency, and an inflow of foreign financial capital are all likely outcomes of a budget deficit.
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