One potential problem with using fiscal policy to close recessionary output gaps is that:
A)sustained government deficits can be harmful to long-run economic growth.
B)decreased government spending can cause inflationary pressure to build.
C)reductions in interest rates can reduce savings and, therefore, investment.
D)it may be offset by automatic stabilizers.

Question

Quizplus · Accepted Answer

If government uses expansionary fiscal policy, deficits and debt will mound up. This public dissaving reduces future rates of growth.

One Potential Problem with Using Fiscal Policy to Close Recessionary