Question

The 90 days have now passed, and it is obvious to many policymakers that a recession exists because consumers are spending less. As a result of these data, the government passes a law that creates an office that will give everyone $3,000 they must spend. This office will take 9 months to create and for hiring the necessary personnel. How would the economy change in this second time period, where the data now have convinced all the policymakers that a recession exists and where the government passed a law to start expansionary fiscal policies, but the money hasn't been distributed yet

Answer 1

During the nine months it takes to establish the office for expansionary fiscal policy, the economy would experience a mix of uncertainty due to the continuation of recessionary conditions and optimism from the anticipation of future spending. This delay in fiscal policy intervention exemplifies the time lags that are commonplace in government responses to economic downturns.

Step-by-step explanation:

In the second time period described, where policymakers are convinced that a recession exists and have passed a law to implement expansionary fiscal policies by distributing $3,000 to each individual, there would be an anticipatory effect on the economy. This interval, however, is characterized by a delay in the actual distribution of funds due to the time required to establish the new office and hire personnel, which could take up to nine months. During this time, the economy might experience a mixture of uncertainty and optimism. Uncertainty because the funds have not yet been injected into the economy, potentially leading to continued reduced consumer spending and sustained recessionary conditions. On the other hand, optimism may stem from the expectation of future spending, which could positively influence consumer and business sentiments.

It is important to note that the delay in implementing fiscal policy is a common issue, reflecting the contrast between the economist's acceptance of time lags and the politician's preference for immediate action. These delays in fiscal policy responses risk being misaligned with the current macroeconomic needs.