An expansionary fiscal policy can be partially offset by a(n):
Group of answer choices
depreciation of the dollar.
increase in aggregate supply.
increase in aggregate demand.
decrease in net exports.
To determine the answer to this multiple-choice question, let's break down the possible options one by one:
1. Depreciation of the dollar: An expansionary fiscal policy involves increasing government spending and/or reducing taxes, which usually leads to an increase in aggregate demand. If the dollar depreciates, imports become more expensive, leading to a decrease in net exports. Thus, a depreciation of the dollar would partially offset the expansionary fiscal policy.
2. Increase in aggregate supply: An increase in aggregate supply refers to the total amount of goods and services produced by an economy. While an expansionary fiscal policy can stimulate economic growth, it typically focuses on increasing aggregate demand through government spending or tax cuts. Therefore, an increase in aggregate supply is not directly related to an expansionary fiscal policy and would not offset it.
3. Increase in aggregate demand: An expansionary fiscal policy aims to boost economic growth by increasing aggregate demand. This can be achieved through increased government spending or tax cuts, which puts more money in consumers' hands to spend. Therefore, an increase in aggregate demand would align with the goals of an expansionary fiscal policy and would not offset it.
4. Decrease in net exports: Net exports refer to the value of a country's exports minus the value of its imports. A decrease in net exports indicates that the country is importing more than it is exporting. Since an expansionary fiscal policy primarily focuses on increasing domestic demand, it is less likely to affect net exports directly. Therefore, a decrease in net exports would not offset an expansionary fiscal policy.
Based on the explanations above, the correct answer in this case would be:
Option 1: Depreciation of the dollar.