ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Policy lags also affect fiscal policies by reducing their effectiveness because it may take a while before the policies impact the economy after being implemented. The economy may be worse than the impact of the implemented policies, hence making them less effective.

Detailed explanation-2: -The problem of time lags There are three types of lag in economic policy: the recognition lag, the decision lag, and the effect lag.

Detailed explanation-3: -Data Lag: Prima facie, policy-makers do not know what is going on in the economy exactly when it happens. Typically, an economic change that starts at the beginning of the month becomes evident at the middle of the next month. So the data lag is about 1.5 months.

Detailed explanation-4: -Fiscal policy’s longest lag is the recognition lag.