One of the shortcomings of fiscal policy is that:
A) it has significant time lags, which make it more effective.
B) it takes effect immediately, so it is the best policy to use in an economic crisis.
C) it affects aggregate demand indirectly through the interest rate.
D) it has time lags, so sometimes it may end up destabilizing the economy.

Question

Quizplus · Accepted Answer

Fiscal policy has time lags, which means that it may take some time before its effects on the economy are felt. This can lead to unintended consequences and the destabilization of the economy. For example, if the government increases spending when the economy is already close to full employment, it may lead to inflationary pressure. Therefore, even though fiscal policy can be a useful tool in stabilizing the economy, policymakers must be careful in its implementation.

One of the Shortcomings of Fiscal Policy Is That