Discretionary fiscal policy may be counterproductive because:
A) the countercyclical nature of such policies sometimes reduces their effectiveness.
B) in the short run, only monetary policy is effective.
C) increases in the government budget deficit affect economic growth in the long run.
D) the various lags in fiscal policy mean that it may take effect when the economy has already recovered.

Question

Quizplus · Accepted Answer

Discretionary fiscal policy may take time to come into effect due to the various lags involved, and it may take effect only when the economy has already moved towards recovery. Therefore, it may not be effective in countering economic downturns and may even be counterproductive.

Discretionary Fiscal Policy May Be Counterproductive Because