Question

What are some of the problems or challenges of fiscal policy application?

Answer 1

Problems or challenges of fiscal policy application are as follows:-

1. It is likely to take wrong policy decision at first, if the government relies on inaccurate statistics.

2. If the government implies a policy, there is a time gap till the policy has an impact in the economy.

3. Impling an Expansionary fiscal policy might lead to decreasing aggregate demand because of Crowding out effect.

4. Fiscal policy will not work if the economy is slow because of shortage of resource rather than lower demand.

5. As Expansionary fiscal policy increases fiscal deficit, there is a limitation on how much deficit the government cal tolerate.