Discuss TWO different lags that can affect the effectiveness of fiscal policy
Added by Carolyn C.
Step 1
Fiscal policy refers to the use of government spending and taxation to influence the economy. The effectiveness of fiscal policy can be hindered by various lags, which are delays between the recognition of a need for policy action and the actual impact of that Show more…
Show all steps
Your feedback will help us improve your experience
Akash M and 65 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
There are a number of substantive problems associated with fiscal policy. The first is an issue of A, in the form of: B lag the time between realizing an economic change is happening and the implementation of the counter-cyclical policy. C lag the time it takes for Congress to pass a budget and president to sign it. D lag the time between the implementation of the policy and the economy's response to the policy.
Akash M.
Briefly state and evaluate the problem of time lags in enacting and applying fiscal policy. Explain the idea of a political business cycle. How might expectations of a near-term policy reversal weaken fiscal policy based on changes in tax rates? What is the crowding-out effect, and why might it be relevant to fiscal policy? In view of your answers, explain the following statement: "Although fiscal policy clearly is useful in combating the extremes of severe recession and demand-pull inflation, it is impossible to use fiscal policy to fine-tune the economy to the fullemployment, noninflationary level of real GDP and keep the economy there indefinitely."
Jennifer S.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD