If lags cause the effects of fiscal policy to be delayed for a long period of time,
A) the policy will magnify recessions and eliminate expansion.
B) there is no way the policy can smooth out the business cycle.
C) the policy will magnify expansions and eliminate recessions.
D) fiscal policy will do nothing to the economy.
E) there is a risk that the policy can actually magnify the business cycle.

Question

Quizplus · Accepted Answer

If lags cause delays in the effects of fiscal policy, there is a risk that the policy can magnify the business cycle. This means that instead of smoothing out the ups and downs of the economy, the policy could potentially worsen them. Therefore, option E is the most appropriate choice.

If Lags Cause the Effects of Fiscal Policy to Be