Question 1

If the government spending multiplier were 4.2, a $1 billion increase in government spending would raise GDP by
A) $2.1 billion after one year.
B) $1 billion after two years.
C) $3.2 billion after one year.
D) $4.2 billion after one year.

Accepted Answer

The government spending multiplier tells us how much GDP will increase for every dollar increase in government spending. If the spending multiplier is 4.2, then a $1 billion increase in government spending will result in a $4.2 billion increase in GDP after one year. Therefore, the answer is D.

Question 2

The implementation lag for monetary policy requires
A) congressional changes in spending and taxes.
B) rather immediate changes in open market operations.
C) changes in state funding rebates.
D) changes in exports and imports.

Accepted Answer

The implementation lag for monetary policy requires rather immediate changes in open market operations, as they are the primary tool used by central banks to influence interest rates and the money supply. Congressional changes in spending and taxes, changes in state funding rebates, and changes in exports and imports are all examples of the implementation lags for fiscal policy.

Question 3

________ that often erode effectiveness of monetary and fiscal policy measures represent delays in the response of the economy to stabilization policy.
A) High inflation levels
B) High unemployment levels
C) Time lags
D) Negative business cycles

Accepted Answer

Time lags refer to delays in the response of the economy to stabilization measures, such as changes in interest rates or government spending. These delays can make it difficult for policymakers to achieve their desired outcomes in a timely manner. Option A and B are incorrect because they refer to the outcomes that policymakers are trying to combat, not the factors that impede their effectiveness. Option D is incorrect because it is not a recognized term in economics.

Question 4

Time lags mean that
A) fiscal policy is more effective than monetary policy.
B) economic policy may be inappropriate when it takes effect.
C) economic policy will be ineffective.
D) monetary policy is more effective than fiscal policy.

Accepted Answer

Time lags refer to the delay between the implementation of economic policy and its impact on the economy. This means that by the time the policy takes effect, economic conditions may have changed, making the policy inappropriate or ineffective. Therefore, option B is the best choice.

Question 5

Because Congress decides on the federal government's budget during the year prior to when it will take effect, the tax laws and spending programs embodied in the budget ________ once they are in place. Because of this, the implementation lag for fiscal policy is ________.
A) are easy to change; often quite long
B) are hard to change; often quite long
C) are easy to change; usually very short
D) are hard to change; usually very short

Accepted Answer

The passage states that the tax laws and spending programs embodied in the budget are set for the upcoming year, indicating that they are hard to change once in place. Additionally, the passage notes that the implementation lag for fiscal policy is often quite long, further supporting the idea that changes to the budget or fiscal policy are not made quickly or easily.

Question 6

The recognition lag for monetary policy is
A) shorter than the recognition lag for fiscal policy.
B) longer than the recognition lag for fiscal policy.
C) about the same length as the recognition lag for fiscal policy.
D) the same length as the implementation lag for monetary policy.

Accepted Answer

The answer of The recognition lag for monetary policy is
A)...

Question 7

The ________ lag for fiscal policy requires changes in congressional-approved spending and tax programs.
A) reorganization
B) response
C) implementation
D) recognition

Accepted Answer

The lag for fiscal policy is the time it takes for changes in spending and tax programs to take effect. This is the implementation lag, as it refers to the amount of time it takes for changes in policy to be put into action. The other choices do not accurately describe this lag.

Question 8

The implementation lag for monetary policy is
A) shorter than the implementation lag for fiscal policy.
B) longer than the implementation lag for fiscal policy.
C) the same length a the implementation lag for fiscal policy.
D) the same length as the recognition lag for monetary policy.

Accepted Answer

The implementation lag for monetary policy is generally shorter than that for fiscal policy because changes in monetary policy (such as adjustments in interest rates or reserve requirements) can be enacted more swiftly by central banks, whereas fiscal policy changes (involving government spending and taxation) often require legislative approval, which can take more time.

Question 9

The ________ lag of stabilization policy represents the time that it takes for policy makers to recognize a change in the economy.
A) implementation
B) business cycle
C) response
D) recognition

Accepted Answer

The recognition lag refers to the time it takes for policymakers to recognize a change in the economy, such as a recession or inflationary pressures. This lag can be influenced by factors such as the availability and quality of economic data, and the time it takes for policymakers to analyze and interpret that data. The other choices (implementation, business cycle, and response) do not accurately describe this specific lag associated with stabilization policy.

Question 10

A response lag is
A) the time it takes to see if that there has been a shock to the economy.
B) the time it takes the Fed or Congress to change economic policy.
C) the time it takes for a new economic policy to affect behavior in the economy.
D) none of the above.

Accepted Answer

A response lag is the time it takes for a new economic policy to affect behavior in the economy. It refers to the time between the implementation of a policy and its impact on the economy. This lag time can vary depending on the complexity of the policy and the size of the economy.

Question 11

A recognition lag is
A) the time it takes to see if that there has been a shock to the economy.
B) the time it takes the Fed or Congress to change economic policy.
C) the time it takes for a new economic policy to affect behavior in the economy.
D) none of the above.

Accepted Answer

A recognition lag refers to the period it takes for policymakers to realize that an economic shock has occurred. This is distinct from the time it takes to implement or for policies to take effect, which are referred to as implementation and impact lags, respectively.

Question 12

Which of the following is not a type of time lag regarding monetary and fiscal policy?
A) reorganization lag
B) response lag
C) recognition lag
D) implementation lag

Accepted Answer

Reorganization lag is not a type of time lag regarding monetary and fiscal policy. The other three options, recognition lag, response lag, and implementation lag, are all types of time lags that can affect the effectiveness of monetary and fiscal policy.

Question 13

Time lags are delays in the economy's response to stabilization policies. For a particular stabilization policy, which of the following represents the correct order in which these time lags occur?
A) implementation lag → response lag → recognition lag
B) response lag → implementation lag → recognition lag
C) recognition lag → implementation lag → response lag
D) implementation lag → recognition lag → response lag

Accepted Answer

Recognition lag is the time it takes for policy makers to recognize the need for intervention. Implementation lag is the delay between recognizing the need for a policy and the time it takes to implement it. Response lag is the time it takes for the policy to have an effect on the economy.

Question 14

An implementation lag is
A) the time it takes to see if that there has been a shock to the economy.
B) the time it takes the Fed or Congress to change economic policy.
C) the time it takes for a new economic policy to affect behavior in the economy.
D) none of the above.

Accepted Answer

An implementation lag refers to the delay between when a need for a policy change is recognized and when the policy is actually implemented by institutions like the Federal Reserve or Congress.

Question 15

In general, fiscal policy has a ________ implementation lag than monetary policy and a ________ response lag.
A) shorter; shorter
B) longer; longer
C) longer; shorter
D) shorter; longer

Accepted Answer

Fiscal policy tends to take longer to implement than monetary policy because it involves the process of creating and passing legislation. On the other hand, once implemented, fiscal policy tends to have a more immediate impact on the economy than monetary policy. This is why fiscal policy has a longer implementation lag but a shorter response lag compared to monetary policy.

Question 16

In general, monetary policy has a ________ response lag than fiscal policy and a ________ implementation lag.
A) shorter; shorter
B) longer; longer
C) longer; shorter
D) shorter; longer

Accepted Answer

Monetary policy typically takes longer to have an impact on the economy than fiscal policy since it operates through interest rates and other financial channels which can take time to filter through the economy. However, the implementation of monetary policy can be quicker than fiscal policy since the central bank has more direct control over the tools of monetary policy (e.g. setting interest rates) compared to the sometimes complicated political process involved in implementing fiscal policy. Therefore, the correct answer is longer response lag than fiscal policy and shorter implementation lag.

Question 17

Because the Fed's current tool for changing the interest rate is to change the ________, once the decision has been made to make the change, ________.
A) rate it pays on bank reserves; the implementation lag is usually very long
B) rate it pays on bank reserves; there is in effect no implementation lag
C) required reserve rate; the implementation lag is usually very long
D) required reserve rate; there is in effect no implementation lag

Accepted Answer

The Fed's current tool for changing the interest rate is to change the rate it pays on bank reserves, and there is in effect no implementation lag once the decision has been made to make the change. This is because the Fed directly controls the rate it pays on bank reserves and can implement the change immediately. The required reserve rate, on the other hand, can have a longer implementation lag because it depends on banks actually changing their behavior and adjusting their reserves accordingly.

Question 18

Related to the Economics in Practice on p. 590: The fact that recessions can be hard to forecast means that the
A) recognition lag is usually short.
B) recognition lag can be long.
C) implementation lag is usually short.
D) response lag is nonexistent.

Accepted Answer

The recognition lag, or the time it takes for policymakers to recognize that a recession is occurring, can be long if recessions are hard to forecast. This can make it difficult for policymakers to implement timely and effective responses, leading to longer implementation lags and potentially longer overall response lags.

Question 19

________ policy and ________ policy have similar recognition time lags.
A) Contractionary; expansionary
B) Growth; recession
C) Fiscal; monetary
D) Implementation; response

Accepted Answer

Both fiscal and monetary policies can take several months to a year to have noticeable effects on the economy. Fiscal policy, which involves changes in government spending or taxation, often needs to go through the legislative process before it can be implemented. Monetary policy, which involves adjustments to interest rates or the money supply, can take time to filter through the financial system and affect borrowing and spending behavior. Hence, both policies have similar recognition time lags.

Question 20

The ________ lag of stabilization policy represents the time that is necessary to put the desired policy into effect once economists and policy makers recognize the need.
A) implementation
B) business cycle
C) response
D) recognition

Accepted Answer

The implementation lag is the time that it takes to put a stabilization policy into effect once economists and policy makers recognize the need for it. The recognition lag refers to the time it takes to recognize that a problem exists, the response lag refers to the time it takes to adjust policy once it is already in effect, and the business cycle refers to the recurring patterns of growth and contraction in the economy.

Quiz 29: Financial Crises, Stabilization, and Deficits

If the government spending multiplier were 4.2, a $1 billion increase in government spending would raise GDP by

The implementation lag for monetary policy requires

________ that often erode effectiveness of monetary and fiscal policy measures represent delays in the response of the economy to stabilization policy.

Time lags mean that

Because Congress decides on the federal government's budget during the year prior to when it will take effect, the tax laws and spending programs embodied in the budget once they are in place. Because of this, the implementation lag for fiscal policy is .

The recognition lag for monetary policy is

The ________ lag for fiscal policy requires changes in congressional-approved spending and tax programs.

The implementation lag for monetary policy is

The ________ lag of stabilization policy represents the time that it takes for policy makers to recognize a change in the economy.

A response lag is

A recognition lag is

Which of the following is not a type of time lag regarding monetary and fiscal policy?

Time lags are delays in the economy's response to stabilization policies. For a particular stabilization policy, which of the following represents the correct order in which these time lags occur?

An implementation lag is

In general, fiscal policy has a implementation lag than monetary policy and a response lag.

In general, monetary policy has a response lag than fiscal policy and a implementation lag.

Because the Fed's current tool for changing the interest rate is to change the , once the decision has been made to make the change, .

Related to the Economics in Practice on p. 590: The fact that recessions can be hard to forecast means that the

policy and policy have similar recognition time lags.

The ________ lag of stabilization policy represents the time that is necessary to put the desired policy into effect once economists and policy makers recognize the need.