A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that
A) government programs are always expansionary.
B) during a recession, politicians prefer increases in government spending over decreasing taxes.
C) government programs automatically move real GDP away from potential GDP.
D) it is difficult to know whether real GDP is above or below potential GDP.
E) economic forecasts consistently underestimate the impact of fiscal policy.
Correct Answer:
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