Which of the following poses a limit to fiscal policy?

Question

Quizplus · Accepted Answer

All of the listed options can limit the effectiveness of fiscal policy.

A. Crowding out occurs when government borrowing increases interest rates, leading to reduced private sector investment and consumption. This can reduce the overall impact of fiscal policy.

B. The size of government expenditures can also limit the effectiveness of fiscal policy. If government spending is already very high, further increases may be difficult to justify or politically untenable.

C. Timing lags can also limit the effectiveness of fiscal policy. It can take time for government spending increases or tax cuts to have an impact on the economy, and by the time the effects are felt, economic conditions may have changed.

Which of the Following Poses a Limit to Fiscal Policy