A Reason Why Discretionary Fiscal Policy Might Move the Economy

question 204

Multiple Choice

A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that

• A)economic forecasts consistently underestimate the impact of fiscal policy.
• B)it is difficult to know whether real GDP is above or below potential GDP.
• C)during a recession,politicians prefer increases in government spending over decreasing taxes.
• D)government programs automatically move real GDP away from potential GDP.
• E)government programs are always expansionary.

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