When a direct expenditure offset occurs with the implementation of an expansionary fiscal policy,
A) the stimulative effect will be less than expected.
B) the stimulative effect will be more than expected.
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 increase in government spending is offset by a decrease in private spending, resulting in a smaller than expected stimulative effect of the fiscal policy. Therefore, the answer is A, the stimulative effect will be less than expected.

When a Direct Expenditure Offset Occurs with the Implementation of an Expansionary