| budget deficit | unexpectedly reduced |
| economy | (could result in) a slowdown |
| inflation | (could be) lower |
| imports | discouraged |
| exports | encouraged |
| home country currency value | higher |
| government borrowing | decline |
| real interest rate | down |
| investment funds to the home country | flow out of the country |
| home country currency value | lower |
| short-run effect (*) | devaluation of the home country's currency |
| aggregate demand | decrease |
| domestic interest rate | decrease (**) |
| imports | reduce |
| Current account deficit | reduce |
| foreign investment | lower |
| domestic capital | leaving the country |
| Capital account surplus | reduce |
(*) Since financial capital is mobile, the effect of the interest rate change generally dominates in the short run, leading to short-run devaluation.
(**) due to less government borrowing
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