When expansionary fiscal policy is used to stimulate the economy a potential trade off may be

Question

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Expansionary fiscal policy, which involves an increase in government spending or a decrease in taxes, can lead to an increase in aggregate demand in the economy. This can cause inflationary pressures, as there is more demand for goods and services than there is supply. Therefore, a potential trade-off of using expansionary fiscal policy is the risk of inflation.

When Expansionary Fiscal Policy Is Used to Stimulate the Economy