Limitations of fiscal policy to manipulate aggregate demand

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  • Limitations of fiscal policy to manipualte aggregate demand
    • Time lags
      • Any increase in government spending takes time to implement
    • Inadequacy of economic data
      • Active fiscal policy assumes that there is knowledge of the state of the economy if this not true the policy could be used at the wrong time
    • Inadequate economic knowledge
      • Nobody knows how the economy will behave
    • National debt
      • Borrowing has become an increasing problem
    • Golden rule in the UK
      • States that the governemnt will only borrow to invest
    • Sustainable investment rule in the UK
      • States that the national debt will be kept at or below 40% of GDP


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