Assume it takes the Bank of Canada four months to understand that a demand shock has occurred in the economy,and another one month to adjust policy to the shock.The initial four-month time period refers to the ________,and the following one-month time period refers to the ________.
A) impact lag; implementation lag
B) recognition lag; implementation lag
C) implementation lag; policy lag
D) policy lag; impact lag

Question

Quizplus · Accepted Answer

The initial four-month time period refers to the recognition lag, as it takes the Bank of Canada four months to understand that a demand shock has occurred in the economy. The following one-month time period refers to the implementation lag, as it takes another one month for the Bank of Canada to adjust policy to the shock.

Assume It Takes the Bank of Canada Four Months to Understand