The Fed decides to stimulate the economy by driving down the real interest rate. Months pass, however, before new factories and houses begin to be built in response. This is an example of
A)a data lag.
B)an impact lag.
C)a recognition lag.
D)an implementation lag.

Question

Quizplus · Accepted Answer

An impact lag occurs because there is a delay between when a policy is implemented and when its effects are felt in the economy. In this case, the delay between the Fed's action to lower real interest rates and the observable impact of new construction starting is an example of an impact lag.

The Fed Decides to Stimulate the Economy by Driving Down