Fine-tuning" the economy is not possible for the United States and generally large economies governed by a democratic political system because... a) Often it takes economists up to 6 months to determine with confidence that the economy changed its trajectory towards recession or expansion. This is the "recognition lag." b) The policies of the Federal Reserve must be approved by Congress which takes a long time. c) It takes the political system (Congress and the President) several months and sometimes years to agree on specific fiscal policies to change the economy's direction. This is the "policy lag." d) It may take considerable time to implement fiscal policy, especially if the policy involves significant new spending programs, as takes many months to set up new administration, policies, procedures and hire the requisite administrators. This is the "implementation or administrative lag." e) The policies passed by Congress must be approved by the Supreme Court. f) Fiscal policy measures must garner approval of 60 senators (out of 100). g) For expansionary monetary policy the impact on the economy usually involves a significant lag that is often unpredictable. h) The combined delay of these four lags often adds up to 12 months for both fiscal and monetary policy and with the average length of a recession at 11 months it is very difficult to time the macroeconomic policy just right to stabilize the economy.
"Fine-tuning" the economy is not possible for the United States and generally large economies governed by a democratic political system because...
a) Often it takes economists up to 6 months to determine with confidence that the economy changed its trajectory towards recession or expansion. This is the "recognition lag."
b) The policies of the Federal Reserve must be approved by Congress which takes a long time.
c) It takes the political system (Congress and the President) several months and sometimes years to agree on specific fiscal policies to change the economy's direction. This is the "policy lag."
d) It may take considerable time to implement fiscal policy, especially if the policy involves significant new spending programs, as takes many months to set up new administration, policies, procedures and hire the requisite administrators. This is the "implementation or administrative lag."
e) The policies passed by Congress must be approved by the Supreme Court.
f) Fiscal policy measures must garner approval of 60 senators (out of 100).
g) For expansionary
h) The combined delay of these four lags often adds up to 12 months for both fiscal and monetary policy and with the average length of a recession at 11 months it is very difficult to time the
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