Answer to Question #216816 in Macroeconomics for Maan

Question

Q. Explain what are the lags in macroeconomic policies. Do these lags
have more effect on monetary policy or fiscal policy and why?

Answer 1

Lags in microeconomics policies -recognition lag can be described as the delay that happens when economic shock occurs and when the economists, government or central bankers recognize it delay takes place because documenting data and analyzing it accurately is not immediately.

Lags have effect on monetary policy because estimated interest rates take up to 18 months to change fully. It implies that the policy to be initiated should predict economy up to 18 months ahead which is very difficulty.