Expansionary fiscal policy, other things being equal, will tend to:

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, which involves increased government spending or decreased taxes, tends to increase aggregate demand. This can lead to higher interest rates as the government competes for funds in the financial markets, potentially crowding out private investment. It does not directly increase investment or net exports; in fact, higher interest rates can reduce investment and make domestic goods more expensive relative to foreign goods, potentially decreasing net exports.

Expansionary Fiscal Policy, Other Things Being Equal, Will Tend To