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

Discretionary fiscal policy is hampered by the difficulty in estimating potential GDP and the lack of accuracy in economic forecasts, which can lead to inappropriate policy measures. However, tax cuts and government expenditure can have significant impacts on aggregate demand, so iii is not a correct statement.

The Use of Discretionary Fiscal Policy Is Hampered by