Discretionary fiscal policy
A) may not have desired effects on real GDP because of the time lags.
B) may not have desired effects on real GDP because it leads to increases in aggregate demand.
C) may not have desired effects on real GDP because it leads to decreases in aggregate demand.
D) would have a larger effect on real GDP if the multiplier was smaller.

Question

Quizplus · Accepted Answer

Discretionary fiscal policy can have time lags, meaning that the desired effects on real GDP may not be immediate. It can take time for the policy to be implemented and for the effects to be felt in the economy. Therefore, the effectiveness of discretionary fiscal policy in achieving its goals is limited by this time lag.

Discretionary Fiscal Policy