Which of the following is the best explanation of how expansionary fiscal policy can crowd out net exports?
A) Expansionary fiscal policy leads to high budget deficits.Foreigners become concerned about the stability of the United States and stop buying American goods as a result.
B) When the government spends more,some of its spending is on foreign goods.As imports rise,net exports fall.
C) The higher interest rates associated with expansionary fiscal policy attract foreign investors.To buy U.S.financial assets,foreigners bid up the real exchange rate,which in turn causes net exports to fall.
D) The cut in taxes associated with expansionary fiscal policy stimulates aggregate supply.As aggregate supply rises,consumers have a greater incentive to purchase domestic goods,causing imports to fall and net exports to drop.
Correct Answer:
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