The use of discretionary fiscal policy is hampered by i.the difficulty of estimating the level of potential GDP.
Ii)the lack of accuracy of economic forecasts.
Iii)the shrinking area of Parliamentary discretion.

Question

Quizplus · Accepted Answer

Option i states that the use of discretionary fiscal policy is hampered by the difficulty of estimating the level of potential GDP, which refers to the difficulty in determining the level of output the economy could produce if resources were fully employed. This poses a challenge when fiscal policymakers attempt to determine the appropriate level of government spending, taxes, and borrowing.

Option ii states that the lack of accuracy of economic forecasts is a challenge to the use of discretionary fiscal policy. Fiscal policymakers often rely on economic forecasts to predict future economic conditions and determine the appropriate course of action. However, these forecasts are often subject to errors and inaccuracies, which can lead to policy mistakes.

Option iii states that the shrinking area of Parliamentary discretion is a challenge to using discretionary fiscal policy. As governments have delegated more responsibility to independent bodies such as central banks, there is less scope for Parliaments to use fiscal policy tools to influence the economy.

All three of these factors pose significant challenges to the use of discretionary fiscal policy, and therefore the correct answer is E, i.e., all of the above.

The Use of Discretionary Fiscal Policy Is Hampered by I