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lag in discretionary policy

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What lag in discretionary policy is described in each of the following statements? Why do long lags make discretionary policy less effective?

a. The time from when the government determines that the economy is in recession until a tax cut is approved to reduce unemployment.

b. The time from when the money supply is increased until the resulting effect on the economy is felt.

c. The time from the start of a recession until the government identifies the existence of severity of the recession.

d. The time from when the Fed decides to reduce the money supply until the money supply actually declines.

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A) Fiscal policy lag effect. Takes time for democracies to pass laws.

B) Monetary policy lag effect.

C) Information reaction lag. The definition of a recession is two consequitive quarters of ...

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lag in discretionary policy

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Discuss: Discretionary Fiscal Policy

Task: Write a response explaining why time lags in discretionary fiscal policy can adversely affect the efforts of the Congress and the President in attempting to maintain a healthy economy. Could it happen that these time lags could actually work to destabilize the economy?

- Identify current trends in macro and microeconomics.
- Analyze the relationship between fiscal and monetary policy in an open economy.
- Critically analyze the role of the government in a market economy.

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