Because monetary and fiscal lags are long and variable:
A) stronger policies must be used.
B) successful stabilization policy is completely impossible.
C) attempts to stabilize the economy are often destabilizing.
D) policy must be completely passive.

Question

Quizplus · Accepted Answer

Monetary and fiscal lags refer to the delays and uncertainties in the effects of monetary and fiscal policies on the economy. Because of these lags, attempts to stabilize the economy through policy actions can often have unintended consequences and end up being destabilizing. Therefore, Option C is the best answer. Stronger policies may not necessarily be effective in addressing these lags, and passive policies may not be appropriate in certain situations. However, successful stabilization policy is not completely impossible, but it requires careful analysis and implementation.

Because Monetary and Fiscal Lags Are Long and Variable