Which of the following is a potential problem with a cyclically balanced-budget fiscal policy?
A)Governments can raise and lower spending levels at will.
B)The life of the business cycle is often too short.
C)Governments never cut taxes.
D)Governments find it easier to cut spending in periods of an inflationary gap than raise spending in periods of a recessionary gap.
E)Governments find it easier to raise spending in periods of a recessionary gap than cut spending in periods of an inflationary gap.

Question

Quizplus · Accepted Answer

Governments often find it politically easier to increase spending during periods of economic downturns (recessionary gaps) to stimulate the economy, but find it much more challenging to cut spending during periods of economic booms (inflationary gaps) due to political resistance and the popularity of government programs, leading to potential fiscal imbalances.

Which of the Following Is a Potential Problem with a Cyclically