Which of the following is NOT a weakness of fiscal policy as a tool of economic stabilization?
A) Fiscal policy is ineffective in dealing with stagflation.
B) The correct implementation of fiscal policy depends on an accurate estimate of potential output.
C) Fiscal policy is subject to lags.
D) Households may NOT respond to changes in fiscal policy that are perceived as permanent.

Question

Which of the following is NOT a weakness of fiscal policy as a tool of economic stabilization?  
A) Fiscal policy is ineffective in dealing with stagflation. 
B) The correct implementation of fiscal policy depends on an accurate estimate of potential output. 
C) Fiscal policy is subject to lags. 
D) Households may NOT respond to changes in fiscal policy that are perceived as permanent.

Quizplus · Accepted Answer

Choice D is not a weakness of fiscal policy as it suggests households may not respond to changes in fiscal policy that are perceived as permanent. However, option A, B, and C are all weaknesses of fiscal policy, as it is ineffective in dealing with stagflation, correct implementation of fiscal policy depends on an accurate estimate of potential output, and fiscal policy is subject to lags.

Which of the Following Is NOT a Weakness of Fiscal