The difference between an inside lag and an outside lag is best described as:
A) an inside lag is the time needed for monetary policy to be effective while an outside lag is the time needed for fiscal policy to be effective.
B) an inside lag is usually much longer than an outside lag.
C) an inside lag is the time between when a policy change is needed and when the Fed identifies the problem and solution, while an outside lag is the time between a policy decision and its effect on the economy.
D) an outside lag is the time between when a policy change is needed and when the Fed identifies the problem and solution, while an inside lag is the time between a policy decision and its effect on the economy.

Question

Quizplus · Accepted Answer

An inside lag refers to the time between when a policy change is needed and when the Fed identifies the problem and solution, while an outside lag is the time between a policy decision and its effect on the economy. Option A is incorrect as it inaccurately describes the lags. Option B is incorrect as there is no general rule that inside lags are longer than outside lags. Option D is incorrect as it reverses the definitions of inside and outside lags.

The Difference Between an Inside Lag and an Outside Lag