Answer to Question #202670 in Macroeconomics for Ondisa

Question

1)   Explain the difference between inside lags and outside lags

2)   Explain the components of inside lags

3)   Explain the components of the outside lags

4)   Illustrate and explain how a policy could have destabilizing effects

Answer 1

1.)Inside lags are periods within the shocks to economies and policy actions that respond to the shocks, while outside lags are periods between policy actions and their economic influences.

2.) Inside lags involves 3 classes including; recognition lags, decision lags, and action lags. The recognition lag involves period taken in recognizing a shock, and decision lag incorporates time taken in deciding or pursuing response.

3.) a)Lag between funds release and drawing up of plans and call for bids

b)Lag between release of funds for construction and call for bids

4.) Fiscal policy could be having a discretionary aspect, like the government debt that may not offset the impact on profits to collapse.