Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2
-Refer to Figure 14.2. If the economy is currently at Point A and policy makers implement a policy to increase aggregate demand, the time the economy needs to make the adjustment is known as the
A) implementation lag.
B) recognition lag.
C) response lag.
D) frictional lag.

Question

Refer to the information provided in Figure 14.2 below to answer the questions that follow.  Figure 14.2
-Refer to Figure 14.2. If the economy is currently at Point A and policy makers implement a policy to increase aggregate demand, the time the economy needs to make the adjustment is known as the
A) implementation lag. 
B) recognition lag. 
C) response lag. 
D) frictional lag.

Quizplus · Accepted Answer

The time the economy needs to make the adjustment after a policy to increase aggregate demand is implemented is known as the response lag. It takes time for the effects of the policy to be felt in the economy as businesses and consumers adjust their behavior. The implementation lag refers to the time it takes for policy makers to put the policy in place, while the recognition lag is the time it takes for policy makers to recognize that action is needed. The frictional lag refers to time delays that occur due to inefficiencies in markets or other factors that slow down the adjustment process.

Refer to the Information Provided in Figure 14