Long lags associated with the legislative process in implementing fiscal policy can make it more difficult to use than monetary policy.

Question

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Fiscal policy involves the government changing tax rates and/or spending levels, which requires the approval of the legislative branch. The legislative process can be slow and involve multiple stages, which can lead to long lags between when a fiscal policy is proposed and when it is actually implemented. In contrast, monetary policy decisions can be made by the central bank relatively quickly and implemented immediately. Therefore, fiscal policy can be more difficult to use effectively due to these long lags.

Long Lags Associated with the Legislative Process in Implementing Fiscal