The use of discretionary fiscal policy is hampered by i. difficulty of estimating the level of potential GDP.
Ii. lack of accuracy of economic forecasts.
Iii. the small impact tax cuts and increases in government expenditure have on aggregate demand.
A)i only
B)ii only
C)iii only
D)i and ii
E)i, ii, and iii

Question

Quizplus · Accepted Answer

The use of discretionary fiscal policy is hampered by the difficulty of estimating the level of potential GDP and the lack of accuracy of economic forecasts. However, tax cuts and increases in government expenditure can still have a significant impact on aggregate demand, so option iii is not accurate. Hence, only option i and ii are correct, and the best choice is D.

The Use of Discretionary Fiscal Policy Is Hampered by I