lags

3. Explain what a decision lag is, and how it impacts the effectiveness of fiscal policy.

the delay in fiscal policy caused by the time that it takes to decide on a course of action. Our policymaker reviews all of the evidence and decides that action is definitely needed. Ok, now what? Should the government take a wait-and-see approach and let the self-correction mechanism kick in? Even if they decide that the self-correction mechanism might take too long or, even deciding to actually do something will take time. Should we lower taxes? Increase spending? Now the legislature needs to get together to decide the actual policy action to take. That will take awhile.