One disadvantage of discretionary fiscal policy is that it can return the economy to its potential level of output,but at the cost of increasing the price level.

Question

Quizplus · Accepted Answer

Discretionary fiscal policy, such as increasing government spending or cutting taxes, can stimulate the economy and bring it back to full potential output. However, when the economy is already operating at or near full capacity, this policy can lead to an increase in aggregate demand, causing inflation and a rise in the price level.

One Disadvantage of Discretionary Fiscal Policy Is That It Can