Considering only its direct effect on income, expansionary fiscal policy tends to:
A)increase income and imports, shifting the U.S. trade balance in the direction of a deficit.
B)increase income and imports, shifting the U.S. trade balance in the direction of a surplus.
C)decrease income and imports, shifting the U.S. trade balance in the direction of a deficit.
D)decrease income and imports, shifting the U.S. trade balance in the direction of a surplus.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, by increasing government spending or cutting taxes, boosts aggregate demand and income. This leads to higher consumption, including of imported goods, thus potentially worsening the trade balance by increasing imports more than exports.

Considering Only Its Direct Effect on Income, Expansionary Fiscal Policy