One Drawback in Using Fiscal Policy as a Stabilization Tool

question 1

Multiple Choice

One drawback in using fiscal policy as a stabilization tool is that fiscal policy:

• A) affects potential output as well as aggregate expenditure.
• B) effects are frequently offset by automatic stabilizers.
• C) is too flexible to use to close output gaps.
• D) is not useful for dealing with prolonged episodes of recession.

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