Business, 25.07.2020 01:01 Fionaauggies

Identifying time lags Advocates of active policy face several obstacles when implementing discretionary fiscal or monetary policy, such as identifying the economy's potential output level, the natural rate of unemployment, and the effects of a passive approach. Policymakers must also cope with a multitude of time lags that complicate the implementation of active policy. Identify the type of time lag illustrated in the following scenario: Policymakers believe that the economy is experiencing a recession, and they have agreed on the need for expansionary monetary policy. However, some economists suggest dropping the federal funds rate by 0.25%, while others think it needs to be decreased by 0.75%.

a. Effectiveness lag
b. Recognition lag
c. Implementation lag
d. Decision-making lag

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Identifying time lags Advocates of active policy face several obstacles when implementing discretion...

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