Practice question · Select all that apply
Which are genuine limitations of discretionary fiscal policy?
Hints
- The limits are about timing, sustainability and politics.
- Whether it works on demand at all is not in doubt.
Show the answer
- A. Budgets take months to approve and deploy
- B. Politically, stimulus is easier to start than to withdraw
- D. Accumulated deficits raise debt-sustainability concerns
Why
Fiscal policy moves demand powerfully, that’s not the problem. Lags, debt, and the ratchet of popular spending are.
Practise Fiscal Policy
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More questions on Fiscal Policy
- Why might a large debt-financed stimulus partially _undermine itself_?
- The same stimulus produces a much larger effect in a deep recession than in a boom. What accounts for the…
- The spending multiplier is larger when the marginal propensity to consume is higher. Why does that make the…
- A country running a budget deficit must see its public debt rise as a share of GDP.
- Sort each stabilizing force: automatic stabilizer or discretionary measure?
- Match each fiscal concept to its definition.