Expansionary fiscal policy to stimulate the economy may be l

Expansionary fiscal policy to stimulate the economy may be less effective when the effects of fiscal policy can often be offset by monetary policy government spending is a relatively small portion of GDP government spending does not directly affect aggregate demand (AD). taxes or increased borrowing to fund spending reduce aggregate demand (AD).

Solution

Option d) Taxes or increased borrowing to fund spending reduce aggregate demand. This is based on the permanent income hypothesis my Milton freidmen.