Question

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

Answer 1

Answer:

Option E

The planning and construction of the resorts represent an impact lag of this policy.

Explanation:

Whereas the legislation was enacted without any delay but planning takes six months and construction taking 2 months, it means the policy has a lag. Therefore, option E, the planning and construction of the resorts represent an impact lag of this policy.