Two Drawbacks in Using Fiscal Policy as a Stabilization Tool

question 124

Multiple Choice

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy affects ______ as well as aggregate demand and fiscal policy is _______.

• A) consumption; too flexible
• B) potential output; not flexible enough
• C) consumption; offset by automatic stabilizers
• D) potential output; offset by automatic stabilizers

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Definitions:

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