Countercyclical fiscal policy is risky because
A)it tends to increase the national debt.
B)real GDP is likely to be close to potential GDP by the time the policy takes effect.
C)it tends to have no effect on unemployment.
D)it tends to make recessions more severe.
E)it tends to result in higher inflation.

Question

Quizplus · Accepted Answer

Countercyclical fiscal policy is aimed at stabilizing the economy during economic downturns or recessions. However, implementing such a policy takes time to take effect, and by the time it does take effect, the economy may already be close to potential GDP. This means that the policy may end up being ineffective or may even worsen the situation by increasing the national debt without stimulating economic growth. Therefore, countercyclical fiscal policy is risky.

Countercyclical Fiscal Policy Is Risky Because