The government just passed a new tax bill that will be applied to the economy ne

Question

The government just passed a new tax bill that will be applied to the economy next year. Most people will not immediately feel the impact of this new tax bill and not adjust their W-2 tax forms. The impact of the new tax bill won't become apparent to them until the following April when their tax bills are due. This problem is referred to as the A. Effect time lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap. B. Recognition time lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap. C. Effect time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap. D. Recognition time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap.

Explanation / Answer

Effect time lag, and it makes it diificult to use discretionary fiscal policy to close the recessionary gap.

Since, there is time lag between the implementation and consequence of the new tax, hence it's effect time lag.

As the impact of the policy cann't be recognised right way, iscretionary fiscal policy are n't that effective in such cases.

If you don't understand anything then comment, I'ill revert back on the same. :)

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