Which of the Following Factors Substantially Reduces the Effectiveness of Discretionary

question 100

Multiple Choice

Which of the following factors substantially reduces the effectiveness of discretionary changes in tax rates or government expenditures as a stabilization tool?

• A) Even though computer models have enhanced our forecasting ability, policy makers at the Federal Reserve have been reluctant to utilize information supplied by the models.
• B) When fiscal policy is altered, the Fed generally shifts monetary policy in a manner that offsets the impact of the fiscal action.
• C) Changes in government expenditures and taxes are always offset by equal changes in private spending.
• D) Since it takes time for fiscal policy to work and since the future is difficult to forecast, it is difficult to time fiscal policy changes correctly.

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