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For each of the separate scenarios, discuss the associated shortcoming of fiscal policy: (1) recognition lag; (2) implementation lag; (3) impact lag; (4) crowding out; or (5) savings shift
For each of the separate scenarios, discuss the associated shortcoming of fiscal policy:
(1) recognition lag; (2) implementation lag; (3) impact lag; (4) crowding out; or (5) savings shift.
- The economy is overheating and some government officials ask for tax increase. However, the president does not approve the policy.
- Firms investments decrease, but the government does not know the problem.
- Government gives out free food. Ada gets the free food instead of buying food from a grocery store.
- Real GDP is falling, and inflation is very high. The government does not know what to do.
- The government can understand the economy better if data are collected and reported more frequently.
- The government raised the government spending 2 years ago. Yet no effect has been observed so far.
- The government is running into a huge deficit. Households prepare for it now by saving more.
- Government keeps borrowing and interest rate continues to rise. Firms cut the purchases on machines.
Expert Solution
a. Recognition lag: Since the President cannot recognize that the need of the economy is of expansionary policy, thus it represents recognition lag in the economy.
b. This also represents Recognition lag in the economy.
c. Implementation Lag
d. Recognition lag
e. Recognition Lag
f. Impact Lag
g. Savings Shift
h. Crowding Out ; Tis represents decrease in private investment because of increase in the rate of interest.
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