Of the five time lags that prevent a discretionary policy from returning aggregate output to full employment instantaneously,two do not slow the effectiveness of monetary policy-the
A)implementation and effectiveness lags.
B)legislative and effectiveness lags.
C)legislative and implementation lags.
D)recognition and effectiveness lags.

Question

Quizplus · Accepted Answer

The two time lags that do not slow the effectiveness of monetary policy are legislative and implementation lags. The legislative lag refers to the time it takes for the government to pass new legislation or change existing laws to implement a new policy, while the implementation lag refers to the time it takes for the policy to be fully implemented by the government or financial institutions. The other time lags, such as recognition, effectiveness, and impact lags, can slow down the effectiveness of discretionary policy in returning aggregate output to full employment.

Of the Five Time Lags That Prevent a Discretionary Policy