The twin deficit hypothesis claims that there is a link between fiscal deficit and trade deficit. The story goes as foll

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The twin deficit hypothesis claims that there is a link between
fiscal deficit and trade deficit.
The story goes as follows. If the government borrowing pushes up
the interest rate, the higher return will attract foreign funds.
This pulls the currencies held by foreigners away from purchasing
exports towards investing in financial assets, so the budget
deficit is accompanied by a trade deficit. Do you agree or disagree
with this hypothesis? How would your answer change if the economy
were initially at a liquidity trap? Explain your answer in the
context of the IS-LM model. (Hint: Consider a fiscal expansion.
Assume that consumption, investment, and net export are all
functions that decrease with an increase in the interest rate.) [8
marks] answer using appropriate diagrams