Question 1

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

Accepted Answer

Fiscal policy is implemented through changes in spending and tax programs, which require time for Congress to approve and for the changes to take effect. This lag between the time fiscal policy is initiated and the time it actually goes into effect is called the implementation lag.

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. These involve the buying and selling of government securities in order to influence the supply of money and credit in the economy. Congressional changes in spending and taxes (Choice A) are related to fiscal policy, which has a longer implementation lag. Changes in state funding rebates (Choice C) and changes in exports and imports (Choice D) are not directly related to monetary policy implementation.

Question 3

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 4

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 of 4.2 implies that for every $1 increase in government spending, GDP will increase by $4.2. Therefore, a $1 billion increase in government spending would result in a $4.2 billion increase in GDP after one year.

Question 5

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

Recognition lag, response lag, and implementation lag are all types of time lags that can occur with monetary and fiscal policy. However, reorganization lag is not a recognized type of time lag in this context.

Question 6

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 7

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 identify an economic problem or change. The other options are not related to this specific lag of stabilization policy.

Question 8

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 has a longer response lag than fiscal policy, meaning that it takes longer for changes in interest rates to have an impact on the economy. However, it also typically has a shorter implementation lag than fiscal policy, as it can be implemented by the central bank more quickly and easily than changes to government spending or taxation.

Question 9

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 has a longer implementation lag than monetary policy because it involves passing legislation and implementing programs, which can take time. However, fiscal policy can have a shorter response lag than monetary policy because once the programs are in place, they can directly impact the economy faster than changes in interest rates, for example.

Question 10

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 question is asking about the implementation lag for fiscal policy, which refers to the time it takes for changes in tax and spending policies to affect the economy. Because Congress decides on the federal government's budget a year before it takes effect, the tax laws and spending programs embodied in the budget are hard to change once they are in place. Therefore, the implementation lag for fiscal policy is often quite long.

Question 11

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

Accepted Answer

Fiscal policy and monetary policy both have similar recognition time lags. The recognition time lag is the time it takes for policymakers to recognize that the economy is experiencing a problem, such as inflation or a recession, and to take action to address it. Fiscal policy involves changes in government spending and taxation, which can take several months to implement after recognition of a problem. Monetary policy involves changes in interest rates and money supply, which can take several months to affect the economy after recognition of a problem. Therefore, both fiscal and monetary policy have similar recognition time lags.

Question 12

________ 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 the delays between the implementation of a stabilization policy measure and its actual effects on the economy, which can reduce the effectiveness of monetary and fiscal policies. High inflation levels and high unemployment levels are economic conditions that stabilization policies are intended to address, while negative business cycles are typically the result of broader economic changes and are not directly related to policy implementation.

Question 13

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 14

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 15

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

Response lag refers to the time it takes for a change in economic policy to affect behavior in the economy. This can be due to various factors such as communication delays, market inefficiencies, and resistance to change. It is different from recognition lag (time to realize there has been a shock), decision lag (time to decide on policy action), and implementation lag (time to enact policy changes).

Question 16

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 implementing a policy and seeing its effects on the economy. Fiscal and monetary policies both have time lags, but monetary policy generally has a shorter time lag than fiscal policy. Therefore, time lags can make economic policy inappropriate or ineffective when it takes effect, as economic conditions may have changed by the time the policy has an impact.

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. Once the decision has been made to make the change, there is in effect no implementation lag. Therefore, the best choice is B.

Question 18

Related to the Economics in Practice on p. 270: 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 refers to the time it takes for policymakers to recognize that a recession is occurring. Since recessions can be hard to forecast, policymakers may take longer to recognize a recession, resulting in a longer recognition lag. The implementation lag and response lag are not affected by the predictability of recessions.

Question 19

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 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 refers to the time it takes for policy makers to put the desired stabilization policy into effect after recognizing the need for it. The other choices - business cycle, response, and recognition - are not specific to this particular lag of stabilization policy.

Quiz 14: Financial Crises, Stabilization, and Deficits

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

The implementation lag for monetary policy requires

A recognition lag is

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

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?

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

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

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

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 .

policy and policy have similar recognition time lags.

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

An implementation lag is

The implementation lag for monetary policy is

A response lag is

Time lags mean that

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. 270: The fact that recessions can be hard to forecast means that the

The recognition lag for monetary policy is

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.