Question 1

Which of the following lags reduces the effectiveness of active policy?

Accepted Answer

Recognition lag and decision-making lag both reduce the effectiveness of active policy by delaying the implementation of necessary measures.

Question 2

The effectiveness lag for monetary policy is short.

Accepted Answer

The effectiveness lag for monetary policy is typically 6-12 months, which is considered a medium-term lag. This is longer than the short-term lag for fiscal policy, which can be immediate or within a few months.

Question 3

The __________ lag is typically longer for fiscal policy than monetary policy.

Accepted Answer

The answer of The __________ lag is typically longer for...

Question 4

Suppose a recession surprises economic forecasters,who did not see it coming.Which type of lag is that?

Accepted Answer

A recognition lag refers to the time it takes for economic forecasters or policymakers to identify that a recession has occurred. In this scenario, the fact that the recession was not predicted suggests that there was a delay in recognizing its existence. A cyclical lag refers to the time it takes for the economy to move through the phases of the business cycle, and the other lags refer to delays in decision-making or implementation, which are not applicable in this situation. An effectiveness lag refers to a delay in seeing the full impact of policy changes.

Question 5

Policy makers may not know that the economy is in a recession until six months after the recession starts; this is a phenomenon known as the

Accepted Answer

The recognition lag refers to the delay that occurs between when a recession begins and when policy makers recognize that the economy is in a recession. It can take several months for economic data to be collected, analyzed, and reported, which means that policy makers may not realize the severity of a recession until it has already begun to have significant negative effects on the economy. A six-month recognition lag is not uncommon.

Question 6

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

Accepted Answer

Monetary policy typically has shorter decision-making and implementation lags because central banks can adjust interest rates or other monetary tools more quickly than governments can pass and implement fiscal measures.

Question 7

Suppose that policy makers are concerned about a shortage of long-term capital investment.To remedy the problem,various plans to cut capital gains taxes have been suggested.The delay in picking a plan is called the

Accepted Answer

The delay in picking a plan is referred to as the decision-making lag. This lag occurs when policymakers take time to analyze and decide which policy to implement.

Question 8

Those who favor a passive approach to policy believe that

Accepted Answer

Those who favor a passive approach to policy believe that lags associated with implementing policies are too long and unstable for discretionary policy to be effective. Therefore, they argue that it is better to rely on automatic stabilizers and allow the economy to adjust on its own rather than implementing discretionary policy.

Question 9

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the

Accepted Answer

The effectiveness lag refers to the time it takes for the Fed's actions to actually impact aggregate demand, as there are various channels through which the effects of monetary policy must propagate through the economy. The recognition lag refers to the time it takes for the Fed to recognize that a change in monetary policy is necessary, the implementation lag refers to the time it takes for the Fed to actually carry out a change in policy, and the decision-making lag refers to the time it takes for the Fed to decide on a course of action. The self-correction lag is not relevant to the Fed's actions, and is instead a feature of the economy's tendency to eventually correct itself in response to economic shocks.

Question 10

Time required __________ is not a time lag associated with using discretionary policy to correct an economic problem.

Accepted Answer

The time required to coordinate monetary and fiscal policy is not typically considered a standard time lag in the implementation of discretionary policy, which usually involves recognition, decision-making, implementation, and the time for the policy to take effect.

Question 11

Which of the following pieces of information is not necessary for active policy to work successfully?

Accepted Answer

All of the information listed, including B, C, D, and E, are important for active policy to work successfully.

Question 12

The time it takes to identify and examine the nature and seriousness of an economic problem is the

Accepted Answer

The recognition lag refers to the time it takes to recognize or identify an economic problem. This can occur because data is not available in a timely manner or because policymakers may not initially recognize the significance of economic indicators. The other lags refer to subsequent stages in the policymaking process.

Question 13

One reason that long time lags hamper the effectiveness of economic policy is that

Accepted Answer

Long time lags in economic policies mean that by the time the impact of a policy is felt, the economic situation may have changed, and a new problem may require a different policy. This can make the original problem worse, hampering the effectiveness of economic policy. Choices A, B, D, and E are not accurate descriptions of how long time lags hamper economic policy.

Question 14

In total,the lags associated with discretionary policy can extend from the time a

Accepted Answer

The lags associated with discretionary policy start from the time a problem occurs in the economy through the time a corrective policy has an impact on the economy. This means that there will be a delay between the occurrence of a problem and the implementation of a policy to address the problem, and then another delay before the policy has any measurable impact on the economy. The other choices are either incomplete or cover only a part of the overall lags associated with discretionary policy.

Question 15

The average U.S.recession (after World War II)has lasted

Accepted Answer

According to data from the National Bureau of Economic Research, the average length of a U.S. recession after World War II is just under a year, although there is significant variation in the duration of individual recessions.

Question 16

An implementation lag is the time it takes

Accepted Answer

Implementation lag refers to the time it takes for a chosen policy to be put into action. This lag can occur due to bureaucratic procedures, logistical challenges, or political obstacles that delay the execution of policy decisions. It is distinct from other types of lags, such as decision lags (choosing what policy to pursue) and impact lags (the time it takes for policy changes to affect the economy).

Question 17

The time it takes for a new policy to register its full impact on the economy after it has been put in force is known as the

Accepted Answer

The effectiveness lag refers to the time it takes for a new policy to register its full impact on the economy after it has been put in force. The decision-making lag refers to the time it takes for policymakers to make a decision on a particular policy. The implementation lag refers to the time it takes for a policy to be put into effect once it has been decided upon. The activity lag refers to the time it takes for economic activity to respond to a policy change. The recognition lag refers to the time it takes for policymakers to recognize the need for a new policy. Out of these options, the effectiveness lag is the best choice for the given question.

Question 18

A new policy is actually put in force during the

Accepted Answer

The implementation lag refers to the time it takes for a policy or decision to actually be put into action. Therefore, a new policy would be put into force during this lag. The activity lag refers to the time it takes for individuals or organizations to respond to the policy or decision. The decision-making lag refers to the time it takes for the decision to be made. The effectiveness lag refers to the time it takes for the policy or decision to actually produce the desired outcome. The recognition lag refers to the time it takes for individuals or organizations to recognize that a problem exists and needs to be addressed.

Question 19

The selection of a new policy takes place during a period of time known as the

Accepted Answer

The decision-making lag refers to the period of time during which policymakers evaluate and ultimately decide on a new policy. This can involve research, debate, and negotiation before a decision is made. It is not the same as the activity lag (time between a problem arising and policymakers recognizing it), effectiveness lag (time required for a policy to produce its desired effect), implementation lag (time between a policy decision and its actual implementation), or recognition lag (time taken for policymakers to acknowledge a problem exists).

Question 20

Long lags make discretionary policy less effective because

Accepted Answer

Discretionary policies are designed to address economic problems, but if there is a long lag between the implementation of the policy and the time it takes for the impact of the policy to be felt, the problem it was meant to cure may have already been corrected. Therefore, long lags make discretionary policies less effective. Option A is a popular saying by John Maynard Keynes, but it does not relate to the question. Option C and D is irrelevant and incorrect. Option E is a confusing answer as automatic stabilizers are designed to work without any discretionary action, and hence, lags are not relevant to this type of policy.

Quiz 17: Macro Policy Debate: Active or Passive