Explanation The effectiveness of the fiscal policy is always questioned by the lags involved in it. There are mainly five lags. They are listed below: Data lag: The policy makers are not aware about the economic changes exactly when it appears. For example, if the economy starts to fall in the beginning of January, it becomes evident at the middle of the next month. Wait-and-see lag: Generally, the policy makers have a wait-and-see attitude when they aware about the economic changes. They do not take any immediate counteractive measures...

12th Edition

ISBN: 9781285738314

Author: Roger A. Arnold

Publisher: Cengage Learning

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Fiscal Policy and Money Market

Fiscal policy is one of the important tools that is used by the government to control inflation or aggregate demand in the economy. Under this policy, there are two rules which are used by the government, one is the expenditure of the government and the …

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Chapter 11, Problem 19QP

To determine

The five fiscal policy lags.

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Chapter 11 Solutions

Macroeconomics (Book Only)

Ch. 11.1 - Prob. 1ST Ch. 11.1 - Prob. 2ST Ch. 11.1 - Prob. 3ST Ch. 11.1 - Prob. 4ST Ch. 11.3 - Prob. 1ST Ch. 11.3 - Prob. 2ST Ch. 11.3 - Prob. 3ST Ch. 11.4 - Prob. 1ST Ch. 11.4 - Prob. 2ST Ch. 11 - Prob. 1VQP

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Is expansionary fiscal policy more attractive to politicians who believe in larger government or to politicians who believe in smaller government? Explain your answer.
Specify whether expansionary or contractionary fiscal policy would seem to be most appropriate in response to each of the situations below and sketch a diagram using aggregate demand and aggregate supply curves to illustrate your answer: A recession. A stock market collapse that hurts consumer and business confidence. Extremely rapid growth of exports. Rising inflation. A rise in the natural rate of unemployment. A rise in oil prices.
What is the difference between discretionary fiscal policy and automatic stabilizers?

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