Answer to Question #218354 in Economics for Andie

Question

4.1     Which of the following statements regarding the monetary and fiscal policy lags is/are correct?

 

a)       The recognition lag is the same for monetary and fiscal policy.

b)       The existence of lags makes it difficult to stabilise the economy by using monetary and/or fiscal policy.

c)        The implementation lag associated with monetary policy is very long.

 

 

[1]     All the statements are correct.

[2]    a and c

[3]     a

[4]     a and b

[5]     c

Answer 1

Although recognition and impact lags are similar for monetary and fiscal policy, implementation lags may be considerably longer for fiscal policy since fiscal policy often requires time consuming stages of government approval.

So, the statements 1, 2 and 3 are correct, and the correct answer is [1].