How does the government's decision to run a budget surplus affect the market for foreign-currency exchange?

Question

Assuming the world interest rate remains the same at 3%, the increase in the budget surplus will lead to:

I. An increase in the demand for dollars

II. An increase in the supply of dollars

III. An increase in the quantity of net exports

IV. Appreciation of the dollar

A. I and IV only

B. I, II, III, and IV

C. II, III, and IV only

D. II and III only

Answer 1

The answer is "A. I and IV only"