During 2013, the U.S. government used contractionary fiscal policy to reduce its budget deficit, and the Federal Reserve expanded the money supply. Economists refer to this type of policy combination as a:

Question

Quizplus · Accepted Answer

A monetary offset occurs when the central bank (in this case, the Federal Reserve) uses monetary policy to counteract the effects of fiscal policy. In this scenario, the contractionary fiscal policy aimed to reduce the budget deficit, while the expansion of the money supply by the Federal Reserve was a form of expansionary monetary policy to stimulate the economy. This combination is known as a monetary offset because the actions of the Federal Reserve offset the contractionary effects of the government's fiscal policy.