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 Data used by policy makers may well be out of date.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.