Stabilization policy is affected by inside lags, which are
A)longer for monetary policy than for fiscal policy
B)made up of the recognition, decision, and discretionary lags
C)made up of the recognition, decision, and action lags
D)the length of time it takes for a policy to affect the economy after its implementation
E)caused by bureaucrats inside the government

Question

Quizplus · Accepted Answer

Inside lags are the time intervals between policymakers recognizing the existence of an economic problem, deciding on a policy response, and then implementing that response. The discretionary lags refer to the time delay for policymakers to take action once a decision has been made. Therefore, inside lags are made up of the recognition, decision, and action lags. This applies to both fiscal and monetary policy. Option A is untrue and implies that monetary policy has longer inside lags, which is incorrect. Option D is also partially correct as it refers to the time it takes for a policy to affect the economy after implementation, but it does not fully describe inside lags. Finally, option E is false and irrelevant.

Stabilization Policy Is Affected by Inside Lags, Which Are