Which of the Following Is the Best Explanation of How

question 4

Multiple Choice

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.

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