To the extent that a direct expenditure offset results from an expansionary fiscal policy,
A)the stimulative effect will be less than anticipated.
B)the stimulative effect will be more than anticipated.
C)the fiscal policy will not be discretionary.
D)the time lags associated with the implementation of fiscal policy will shorten.

Question

Quizplus · Accepted Answer

A direct expenditure offset occurs when an expansionary fiscal policy is offset by a reduction in other government spending or an increase in taxes in order to maintain a balanced budget. This will reduce the overall stimulative effect of the expansionary policy, as it is essentially counteracted by contractionary policies. Therefore, the stimulative effect will be less than anticipated.

To the Extent That a Direct Expenditure Offset Results from an Expansionary