Question

How does Decision lag affect economic policies?

Answer 1

Answer:

Decision lag affect on economic policies:

The decision lag is the period between the time when the need for action is recognized and the time when action is taken.

Although the recognition lag is presumably of about the same duration for both monetary and fiscal policies, the decision lag is usually considerably shorter for monetary policy than for fiscal policy.

The central bank can change monetary policy almost overnight, whereas a change in fiscal policy is more complex, both politically and administratively.

In many countries changes in income taxes, for example, can be made only at the beginning of a calendar year; such changes are often complicated by political discussions in the legislative body.

In order to reduce the decision lag in fiscal policy, some countries have given the authorities power to take limited action without the prior consent of the legislature.

In the United Kingdom the government introduced a regulation that allowed it to make immediate changes in tax policy.