Question

Which of the following lags associated with fiscal policy are expected to be alleviated by automatic stabilizers such as unemployment benefits?
A. recognition lags
B. implementation lags
C. impact lags
D. Both A and B
E. Both B and C
F. Both A and C

Answer 1

Answer:

D. Both A and B

Explanation:

Recognition Lags in fiscal policy refers to the time lag a country has in clearly visiting the problems faced, when the policy is formed.

As for example the country government might not be able to recognise the problem of unemployment up to a certain identified amount. with automatic stabilisers the authorities can collect automatic data for this issue, and expected time lag will decrease and become minimal.

Implementation lag occurs when the authorities see the adversity of a problem in economy and implements a fiscal policy but it is not implemented in an effective manner, and the results are thus lagged.

Accordingly, automatic stabilisers will improve such time lag by providing the main areas of the country where the adversity of a problem is maximum.