Question

In most nations, one or more governing bodies must approve government spending or new tax policies. this process causes a(n) ________ lag

Answer 1

In most nations, one or more governing bodies must approve government spending or new tax policies. this process causes a(n) implementation lag.

    Implementation lag is the delay between an adverse macroeconomic event and the implementation of a fiscal or monetary policy response by the government and central bank. Implementation lag can result into delays due to various reasons such as failure in recognizing a problem, disagreements and bargaining over the appropriate response; physical, technical and administrative constraints etc.

      Implementation lag may reduce the effectiveness of a policy response or even result in periods of procyclical policy. There is always an implementation lag after a macroeconomic surprise.Policy makers may not ever realize there is a lag due to data lag.

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