Suppose that the president has decided to increase government spending by buildi
ID: 1209154 • Letter: S
Question
Suppose that the president has decided to increase government spending by building more libraries. The legislation was rushed through Congress and enacted without any delay. From here, the libraries will take 10 months to plan and 2 years to build. Which of the following is true?
a)The planning and building of the libraries represents an impact lag of this policy.
b)The planning and building of the libraries represents a recognition lag of this policy.
c) This policy shows an example of automatic stabilizers taking effect.
d)This policy is contractionary.
e)The Laffer curve would be used to recommend this policy
Explanation / Answer
To answer this question at first you have to know about the policy lag.
As we know there is two type of policy that government can be taken for controlling the economy which is fiscal and monetary policy.A policy lag is the lag between the time an economic problem arises, such as recession or inflation, and the effect of a policy intended to counteract it. Now there are 4 types of policy lag which we explain by a real life example:
1) Recognition Lag
When you encountered a flat tire, it took a while for you to recognize it. The same thing happens with fiscal and monetary policies. Recognition lag is the amount of time it takes for fiscal or monetary authorities to recognize a problem in the economy. This type of lag occurs primarily because it takes time for the economy to be tracked and for economic reports to be published. Many economic indicators tend to be backward-looking, meaning that they're telling you what's already happened instead of what is happening right now. Since much of the data is old by the time it's reviewed, it may take weeks or months before an economic problem, such as a recession or inflation, is recognized. So that's the recognition lag; the problem's been recognized. So there is no recognition lag according to the question.
2) Decision Lag
Once government leaders identify an economic problem such as recession, the Congress must agree on a course of action. This often requires a law to be written, passed, and signed by the President. If you think back to the vacation in the story, once you recognized the flat tire, it probably took you a few minutes to decide how to respond. Should you call a tow truck? Should you try and flag someone else down on the road? This was your decision lag. In economics, decision lagis the amount of time it takes for fiscal or monetary authorities to make a decision regarding how best to handle an economic problem
3) Implementation Lag
When your car had a flat tire, you decided on a strategy to respond. Let's say that you called the tow truck. When you did, you probably sat around a while waiting for the tow truck to arrive. Once the car was towed, it took additional time before the car reached the nearest repair shop. This was your implementation lag. Looking at it economically, since the federal government is such a large organization, it may take weeks or months for the appropriate agencies to be contacted and for decisions to be carried out after fiscal policy actions have been decided on. Economists would say it this way: implementation lag is the amount of time it takes for fiscal and monetary policy decisions to be implemented. There is some implementation lag.
4) Effectiveness Lag
Finally, when your car was at the repair shop being worked on, it took time for the car to get fixed and for the repair to be effective so the car would be drivable again. When this happens in the economy, we call it an effectiveness lag. Here's how economists describe it: effectiveness lag is the amount of time it takes for a fiscal or monetary policy's effects to produce the desired result. Even after a policy is implemented, it still takes time for it to work.so this lag is relevant to this problem
So according to above discursion this is clear that the problem is only due to effective lag that is case C and partially for implementation lag so no recognition lag is here because the problem is already recognized and this problem is not related to laffer curve its cant define by this because laffer curve shows us the relationship between taxation and govnment revenue.
As we know there is two type of policy that government can be taken for controlling the economy which is fiscal and monetary policy.A policy lag is the lag between the time an economic problem arises, such as recession or inflation, and the effect of a policy intended to counteract it. Now there are 4 types of policy lag which we explain by a real life example:
1) Recognition Lag
When you encountered a flat tire, it took a while for you to recognize it. The same thing happens with fiscal and monetary policies. Recognition lag is the amount of time it takes for fiscal or monetary authorities to recognize a problem in the economy. This type of lag occurs primarily because it takes time for the economy to be tracked and for economic reports to be published. Many economic indicators tend to be backward-looking, meaning that they're telling you what's already happened instead of what is happening right now. Since much of the data is old by the time it's reviewed, it may take weeks or months before an economic problem, such as a recession or inflation, is recognized. So that's the recognition lag; the problem's been recognized. So there is no recognition lag according to the question.
2) Decision Lag
Once government leaders identify an economic problem such as recession, the Congress must agree on a course of action. This often requires a law to be written, passed, and signed by the President. If you think back to the vacation in the story, once you recognized the flat tire, it probably took you a few minutes to decide how to respond. Should you call a tow truck? Should you try and flag someone else down on the road? This was your decision lag. In economics, decision lagis the amount of time it takes for fiscal or monetary authorities to make a decision regarding how best to handle an economic problem
3) Implementation Lag
When your car had a flat tire, you decided on a strategy to respond. Let's say that you called the tow truck. When you did, you probably sat around a while waiting for the tow truck to arrive. Once the car was towed, it took additional time before the car reached the nearest repair shop. This was your implementation lag. Looking at it economically, since the federal government is such a large organization, it may take weeks or months for the appropriate agencies to be contacted and for decisions to be carried out after fiscal policy actions have been decided on. Economists would say it this way: implementation lag is the amount of time it takes for fiscal and monetary policy decisions to be implemented. There is some implementation lag.
4) Effectiveness Lag
Finally, when your car was at the repair shop being worked on, it took time for the car to get fixed and for the repair to be effective so the car would be drivable again. When this happens in the economy, we call it an effectiveness lag. Here's how economists describe it: effectiveness lag is the amount of time it takes for a fiscal or monetary policy's effects to produce the desired result. Even after a policy is implemented, it still takes time for it to work.so this lag is relevant to this problem
So according to above discursion this is clear that the problem is only due to effective lag that is case C and partially for implementation lag so no recognition lag is here because the problem is already recognized and this problem is not related to laffer curve its cant define by this because laffer curve shows us the relationship between taxation and government revenue.
As we know there is two type of policy that government can be taken for controlling the economy which is fiscal and monetary policy.A policy lag is the lag between the time an economic problem arises, such as recession or inflation, and the effect of a policy intended to counteract it. Now there are 4 types of policy lag which we explain by a real life example:
1) Recognition Lag
When you encountered a flat tire, it took a while for you to recognize it. The same thing happens with fiscal and monetary policies. Recognition lag is the amount of time it takes for fiscal or monetary authorities to recognize a problem in the economy. This type of lag occurs primarily because it takes time for the economy to be tracked and for economic reports to be published. Many economic indicators tend to be backward-looking, meaning that they're telling you what's already happened instead of what is happening right now. Since much of the data is old by the time it's reviewed, it may take weeks or months before an economic problem, such as a recession or inflation, is recognized. So that's the recognition lag; the problem's been recognized. So there is no recognition lag according to the question.
2) Decision Lag
Once government leaders identify an economic problem such as recession, the Congress must agree on a course of action. This often requires a law to be written, passed, and signed by the President. If you think back to the vacation in the story, once you recognized the flat tire, it probably took you a few minutes to decide how to respond. Should you call a tow truck? Should you try and flag someone else down on the road? This was your decision lag. In economics, decision lagis the amount of time it takes for fiscal or monetary authorities to make a decision regarding how best to handle an economic problem
3) Implementation Lag
When your car had a flat tire, you decided on a strategy to respond. Let's say that you called the tow truck. When you did, you probably sat around a while waiting for the tow truck to arrive. Once the car was towed, it took additional time before the car reached the nearest repair shop. This was your implementation lag. Looking at it economically, since the federal government is such a large organization, it may take weeks or months for the appropriate agencies to be contacted and for decisions to be carried out after fiscal policy actions have been decided on. Economists would say it this way: implementation lag is the amount of time it takes for fiscal and monetary policy decisions to be implemented. There is some implementation lag.
4) Effectiveness Lag
Finally, when your car was at the repair shop being worked on, it took time for the car to get fixed and for the repair to be effective so the car would be drivable again. When this happens in the economy, we call it an effectiveness lag. Here's how economists describe it: effectiveness lag is the amount of time it takes for a fiscal or monetary policy's effects to produce the desired result. Even after a policy is implemented, it still takes time for it to work.so this lag is relevant to this problem
So according to above discursion this is clear that the problem is only due to effective lag that is case C and partially for implementation lag so no recognition lag is here because the problem is already recognized and this problem is not related to laffer curve its cant define by this because laffer curve shows us the relationship between taxation and government revenue.
As we know there is two type of policy that government can be taken for controlling the economy which is fiscal and monetary policy.A policy lag is the lag between the time an economic problem arises, such as recession or inflation, and the effect of a policy intended to counteract it. Now there are 4 types of policy lag which we explain by a real life example:
1) Recognition Lag
When you encountered a flat tire, it took a while for you to recognize it. The same thing happens with fiscal and monetary policies. Recognition lag is the amount of time it takes for fiscal or monetary authorities to recognize a problem in the economy. This type of lag occurs primarily because it takes time for the economy to be tracked and for economic reports to be published. Many economic indicators tend to be backward-looking, meaning that they're telling you what's already happened instead of what is happening right now. Since much of the data is old by the time it's reviewed, it may take weeks or months before an economic problem, such as a recession or inflation, is recognized. So that's the recognition lag; the problem's been recognized. So there is no recognition lag according to the question.
2) Decision Lag
Once government leaders identify an economic problem such as recession, the Congress must agree on a course of action. This often requires a law to be written, passed, and signed by the President. If you think back to the vacation in the story, once you recognized the flat tire, it probably took you a few minutes to decide how to respond. Should you call a tow truck? Should you try and flag someone else down on the road? This was your decision lag. In economics, decision lagis the amount of time it takes for fiscal or monetary authorities to make a decision regarding how best to handle an economic problem
3) Implementation Lag
When your car had a flat tire, you decided on a strategy to respond. Let's say that you called the tow truck. When you did, you probably sat around a while waiting for the tow truck to arrive. Once the car was towed, it took additional time before the car reached the nearest repair shop. This was your implementation lag. Looking at it economically, since the federal government is such a large organization, it may take weeks or months for the appropriate agencies to be contacted and for decisions to be carried out after fiscal policy actions have been decided on. Economists would say it this way: implementation lag is the amount of time it takes for fiscal and monetary policy decisions to be implemented. There is some implementation lag.
4) Effectiveness Lag
Finally, when your car was at the repair shop being worked on, it took time for the car to get fixed and for the repair to be effective so the car would be drivable again. When this happens in the economy, we call it an effectiveness lag. Here's how economists describe it: effectiveness lag is the amount of time it takes for a fiscal or monetary policy's effects to produce the desired result. Even after a policy is implemented, it still takes time for it to work.so this lag is relevant to this problem
So according to above discursion this is clear that the problem is only due to effective lag that is case C and partially for implementation lag so no recognition lag is here because the problem is already recognized and this problem is not related to laffer curve its cant define by this because laffer curve shows us the relationship between taxation and government revenue.
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