TRUE or FALSE: Because of the lags inherent to discretionary fiscal policy, such policy is as likely to be pro-cyclical as it is to be counter-cyclical.

Expert Solution

True.

There are 3 types of lags that are associated with a fiscal policy : recognition lag, decision lag and implementation lag.

During the time it takes a government or central bank to identify and decide to act to an economic event (recession, inflation, contraction, etc), and the time it takes to implement those fiscal policy decisions, the economic event that necessitated changes in fiscal policy may have changed, worsened, or even reversed.

Thus, the fiscal policy, when it's finally implemented fully, may turn out to be either pro-cyclical or counter-cyclical.

Rahul Sunny answered 2 years ago

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Question

TRUE or FALSE: Because of the lags inherent to discretionary fiscal policy, such policy is as likely to be pro-cyclical as it is to be counter-cyclical.

Solutions

Expert Solution

Related Solutions

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