Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy because of:
A) the time necessary to draw up a budget appropriate to the circumstances.
B) a negative interaction between fiscal and monetary policy due to the multiplier effect.
C) a tendency of prices to change faster than the interest rate.
D) business cycles that are closely synchronized to the political cycle.

Question

Quizplus · Accepted Answer

Fiscal policy can be destabilizing due to the time lags involved in recognizing economic issues, implementing policies, and seeing their effects, which can lead to inappropriate timing of interventions.

Government's Efforts to Stabilize the Business Cycle Through Fiscal Policy