An expansionary fiscal policy can be partially offset by a(n):
A)increase in aggregate demand.
B)increase in aggregate supply.
C)depreciation of the dollar.
D)decrease in net exports.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy involves increased government spending and/or tax cuts, which would typically increase aggregate demand. However, this increase in aggregate demand could be partially offset by a decrease in net exports (exports-imports). This is because an increase in demand would lead to an increase in prices, making goods and services from the domestic economy more expensive relative to those from other countries. As a result, net exports could decrease, partially offsetting the increase in aggregate demand.

An Expansionary Fiscal Policy Can Be Partially Offset by A(n)