Expansionary fiscal policy tends to:
A)raise U.S. income, increase U.S. imports, and increase the trade deficit.
B)raise U.S. income, increase U.S. imports, and lower the trade deficit.
C)lower U.S. income, reduce U.S. imports, and increase the trade deficit.
D)lower U.S. income, reduce U.S. imports, and lower the trade deficit.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, such as increased government spending or tax cuts, tends to raise U.S. income. This increase in income boosts consumer spending, including spending on imports. As imports increase, the trade deficit (the difference between exports and imports) tends to widen, assuming exports do not change by the same magnitude.

Expansionary Fiscal Policy Tends To