Macroeconomics question write one real or made up example of any 1 limitation and 3 questions total about any 3 limitations.

Disincentives of Tax Cuts. Increasing taxes to reduce AD may cause disincentives to work, if this occurs, there will be a fall in productivity and AS could fall.
However higher taxes do not necessarily reduce incentives to work if the income effect dominates the substitution effect.

Side effects on public spending. Reduced government spending (G) to decrease inflationary pressure could adversely affect public services such as public transport and education causing market failure and social inefficiency.

Poor information. Fiscal policy will suffer if the government has poor information. E. g. If the government believes there is going to be a recession, they will increase AD, however, if this forecast was wrong and the economy grew too fast, the government action would cause inflation.

Time lags. If the government plans to increase spending – this can take a long time to filter into the economy, and it may be too late. Spending plans are only set once a year. There is also a delay in implementing any changes to spending patterns.

Budget Deficit. Expansionary fiscal policy (cutting taxes and increasing G) will cause an increase in the budget deficit which has many adverse effects. A higher budget deficit will require higher taxes in the future and may cause crowding out.

Other components of AD. If the government uses fiscal policy, its effectiveness will also depend upon the other components of AD, for example, if consumer confidence is very low, reducing taxes may not lead to an increase in consumer spending.