Which of the following is not a limitation of using fiscal policy as a tool to achieve macroeconomic goals?

Question

BlackTom AI · Accepted Answer

Fiscal policy can be targeted at specific industries within the economy, so option (a) is not a limitation.

1. Relevant concepts
- Fiscal policy: government use of spending and taxation to influence aggregate demand and achieve macro goals (growth, low unemployment, price stability).
- Tools: government purchases, tax changes, subsidies, transfers — which can be directed to particular sectors.
- Multiplier and MPC: the fiscal multiplier = 1/(1 − MPC) measures how much total output changes from an initial change in government spending.

2. Step-by-step reasoning
- Targeting: Governments routinely use sector-specific spending and tax measures (infrastructure projects in regions, R&D tax credits, subsidies for renewable energy, tariffs or grants for agriculture/manufacturing). These tools show fiscal policy can be targeted to industries — this is an advantage, not a limitation.
- By contrast, the other choices describe genuine constraints that limit fiscal policy effectiveness.

3. Calculations / intermediate steps (multiplier example)
- If MPC = 0.8, multiplier = 1/(1 − 0.8) = 1/0.2 = 5 (large effect).
- If MPC = 0.2, multiplier = 1/(1 − 0.2) = 1/0.8 = 1.25 (much smaller effect).
This demonstrates option (d) is a real limitation: low MPC reduces the multiplier.

4. Why the correct answer is correct
- Because targeting specific industries is feasible via selective spending, tax incentives, and subsidies, it is not a limitation but a capability of fiscal policy.

5. Why other options are incorrect (i.e., they are limitations)
- (b) Expansionary fiscal policy often requires borrowing or deficit spending, which raises national debt — a clear limitation.
- (c) If the economy is near full capacity, expansionary fiscal policy can overheat demand and cause inflation — another limitation.
- (d) Low MPC reduces the fiscal multiplier, so fiscal measures may have only a small effect on aggregate demand — a valid limitation.

6. Conclusion
Therefore the statement that is not a limitation is (a) It can be targeted at specific industries within the economy, which matches the provided correct answer.

Which of the following is not a limitation of using fiscal policy as a tool to achieve macroeconomic goals?单项选择题

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