Fiscal policy can be an inappropriate macroeconomic stabilization tool, since
A)it has a larger outside lag than monetary policy
B)it may have side effects that can distort decisions in the private sector
C)it will always involve a loss of tax revenue for the government
D)it has no short-run effects
E)none of the above

Question

Quizplus · Accepted Answer

Fiscal policy can have side effects such as crowding out private investment or creating inefficient incentives in the private sector. It also may have a smaller impact on the economy in the short run compared to monetary policy. However, it is not always associated with a loss of tax revenue for the government, and it can have a shorter outside lag than monetary policy in certain circumstances.

Fiscal Policy Can Be an Inappropriate Macroeconomic Stabilization Tool, Since