A monetary offset of an expansionary fiscal policy occurs when:
A) there is a concurrent rise in unemployment.
B) contractionary monetary policy is implemented concurrently.
C) the money supply is raised to pay for the policy.
D) an increase in government purchases is paid for by extra borrowing.

Question

Quizplus · Accepted Answer

Contractionary monetary policy implemented concurrently with an expansionary fiscal policy can offset the effects of the fiscal policy by increasing interest rates, which can dampen investment and spending, counteracting the fiscal policy's intent to stimulate the economy.

A Monetary Offset of an Expansionary Fiscal Policy Occurs When