A. implementation lag B. recognition lag C. impact lag SNAPSHOT Recession, Stimu

Question

A. implementation lag

B. recognition lag

C. impact lag

SNAPSHOT Recession, Stimulus, Reinvestment Unemployment rate Real GDP growth Period of recession 1213 12% 10% 8% 2 National Elections November 2008 6% Barack Obama was elected in large part because of the economic decline. 4% 2% 0% Long run Economic Stimulus Act February 2008 American Recovery and Reinvestment Act February 2009 296- average 3 30% This $168 billion stimulus act focused on tax reductions, including a rebate on 2007 taxes. The rebate was meant to spur consumer spending. But if aggregate demand was affected, it was not enough to jog the economy out of its deep descent in 2008. -4% With the economy still in shambles, the Obama administration enacted an aggressive $789 billion stimulus plan that focused on government spending in "shovel-ready" infrastructure projects. 6% 8% 10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Explanation / Answer

Correct options are (A) and (C).

An implementation lag is caused by a delay between the time an economic shock is recognized and the time when it is implemented. An impact lag is caused by a delay between the time an economic policy is implemented and the time when the implemented policy starts affecting the economy.

But a recognition lag is the delay caused by the failure of government or central bank to recognize an economic shock.

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