PLEASE ANSWER THIS QUESTION CORRECTLY 8. Fiscal policy: criticisms and complicat

Question

PLEASE ANSWER THIS QUESTION CORRECTLY

8. Fiscal policy: criticisms and complications Aa Aa Which of the following scenarios is an example of a recognition lag? O The economy enters a deep recession on the same day that new quarterly data show positive economic growth O The economy enters a deep recession, and Congress passes spending bills for public works projects that wil take years to plan and build. O The economy enters a deep recession, and Congress takes two months to approve an extensive tax-cut bill Which of the following scenarios is an example of an administrative lag? O In response to a recession, Congress passes a spending bill for interstate highway upgrades that will take years to plan and complete. O Policymakers obtain relevant economic data months after a recession has already begun. O A new law requires that all new spending bills go through at least one month of debate before receiving a Congressional vote Government financing of deficit spending can offset the deficit's expansionary effect if government borrowing increases interest rates and reduces private investment. The offsetting effect is known as the Suppose the governments of two different economies, economy A and economy B, implement a tax cut of the same size. The tax cut in economy A is permanent, while the tax cut in economy B is temporary. The economies are identical in all other respects. The tax cut will have a larger impact on current consumption and aggregate demand in economy:

Explanation / Answer

Example of Recognition lag:

Time taken to get information about the problem is called recognition lag.

The economy enters a deep recession, on the same day that new quarterly data shows positive economic growth.

Example of administrative lag:

Time between incident and policy formation is called administrative lag.

a New law requires that all new spending bills go through at least one month of debate before receiving a congressional vote.

Offset effects are called:

Crowding out effect.

Impact of tax cut:

Economy A

Permanent tax cut will increase consumption of people, thus it will have strong impact on economy.

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