1st attempt See Hint Suppose that the president of a small island nation has dec

Question

1st attempt See Hint Suppose that the president of a small island nation has decided to increase government spending by outfitting an expedition to explore the intricate system of underwater caves around the island. The legislation was enacted without any delay. From here, planning will take 6 months and initial scouting will take 2 months. Which of the following is true? Choose one: O A. This policy shows an example of automatic stabilizers taking effect. O B. This policy is contractionary. O C. The planning and initial scouting of the explorers represent a recognition lag of this policy. D. The planning and initial scouting of the explorers represent an impact lag of this policy. E. The Laffer curve would be used to recommend this policy

Explanation / Answer

Correct option is (D).

Higher government spending is an expansionary fiscal policy which is not an automatic stabilizer. Since legislation was enacted without delay, there was no recognition lag. Therefore, planning and scouting represent an implementation and impact (effectiveness) lag.

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