Question

Suppose that the president of a small island nation has decided to increase government spending by building more libraries. The legislation was enacted without any delay. From here, planning will take 6 months and building will take 2 months. Which of the following is true? Choose one: O A. The planning and building of the libraries represent an impact lag of this policy B. The Laffer curve would be used to recommend this policy. O C. The planning and building of the libraries represent a recognition lag of this policy D. This policy is contractionary. E. This policy shows an example of automatic stabilizers taking effect.

Answer 1

A. The planning and building of the libraries represent an impact lag of this policy

Step-by-step explanation:

Impact lag, is the time it takes for monetary and fiscal policies to smooth out the economic cycle or respond to an adverse economic event, to affect the economy once they have been implemented.

Recognition lag is the time lag between when an actual economic shock such as sudden boom or bust and when it is recognized by economists, central bankers and the government.