False.
A government budget deficit causes the market for loanable money to shift the supply curve to the left. As a result of the ongoing demand, interest rates are increasing. Private investment in the economy is discouraged as a result, and investment levels decline. There would be a capital inflow, an increase in the exchange rate, and a decline in exports.
what is capital inflow?
Money entering into a country that would benefit from it in the form of investments is referred to as a capital inflow. The host nation is most commonly referred to as the country that receives the influx. The first money are sent or invested by the nations of origin. Such capital inflows are frequently attracted by a variety of factors in the host countries.
Multinational firms make direct foreign investment when they buy real, observable assets in the host nation. This might take the shape of acquiring a nearby business entirely or setting up a manufacturing facility there. Portfolio investments in the financial securities of the host country are another possibility. This may include bonds and equities that international banks, people living abroad, insurance firms, pension funds, and hedge funds may purchase.
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