One drawback in using fiscal policy as a stabilization tool is that fiscal policy:
A)affects potential output as well as planned 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.

Question

Quizplus · Accepted Answer

Fiscal policy often changes work incentives due to changing taxes and transfer payments. These altered incentives often affect potential output too.

One Drawback in Using Fiscal Policy as a Stabilization Tool