Expansionary fiscal policy leads to

Question

Quizplus · Accepted Answer

Expansionary fiscal policy involves government spending increases and/or tax cuts, which leads to an increase in aggregate demand. This, in turn, leads to inflationary pressures and higher interest rates. An increase in interest rates leads to an appreciation of the currency, resulting in higher exchange rates. Higher exchange rates make exports more expensive, leading to decreased exports. On the other hand, imports become relatively cheaper, leading to an increase in imports. Therefore, the correct answer is D.

Expansionary Fiscal Policy Leads to