Increases in government spending aimed at increasing AD
do take time to work through the economy. If the government
announces a £500 million increase in road building and the multiplier is 2, then this should lead to an increase in equilibrium national income of £1000 million. However, it may take some time
for the full increase to work through the economy. So, a government needs to be careful because it may find that expansionary fiscal policy
will not raise equilibrium national income as quickly as desired. Alternatively the government may find that by the time the full effect
of the expansionary fiscal policy is working its way through the economy, the economy is already at full employment. This would push
the economy beond full employment, causing inflation. Governments have been accused of destabilising the economy
by using fiscal policy in such a way.
Governments are often not helped by inadequate economic data. Data used by policy makers may well be out of date. This means that a Chancellor could carry out contractionary fiscal policy, based on current evidence showing AD rising, when in fact AD may have already started to fall at the time. This policy would re-inforce the fall in AD, possibly raising unemployment by more than if the Chancellor had not acted at all.