Fiscal policy is neutral in the long run because
A) the stimulus translates into contractionary monetary policy that dampens investment and negates the policy.
B) the expansion of GDP causes interest rates to climb and thereby lowers investment and cancels the stimulus.
C) increases in government spending always cause higher deficits, public outrage at the debt, and subsequent higher taxes or program rollbacks that cancel the initial stimulus.
D) the political business cycle is manipulated to try to produce recovery from recession during election years.
E) none of the above.
Correct Answer:
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