10. Consider the open-economy macroeconomic model. Suppose a country experiences a significant increase in its government budget deficit. Which of the following outcome(s) are most likely to occur as a result? (A) The net capital outflow increases, leading to a depreciation of the country's currency. (B) The net capital outflow increases, leading to a depreciation of the country's currency. (C) The trade balance worsens due to a decrease in net exports. (D) The real interest rate rises, leading to a decrease in domestic investment.

12. Consider the concept of interest rate parity (IRP) for the association between interest rate differences and exchange rates. Which of the following statement(s) correctly illustrate the principle of interest rate parity? (A) If Country A's interest rate is 5% and Country B's interest rate is 3%, the forward exchange rate should predict a 2% depreciation of Country A's currency relative to Country B's currency. (B) If investors expect the currency of Country A to appreciate, the interest rate in Country A must be lower than in Country B to maintain interest rate parity. (C) Interest rate parity ensures that there are no arbitrage opportunities arising from differences in interest rates between two countries. (D) Interest rate parity implies that the difference in interest rates between two countries is equal to the expected change in exchange rates between their currencies.

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