Question

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

a) longer than
b) shorter than
c) about the same
d) as the same as

Answer 1

a) Longer than fiscal policy

Step-by-step explanation:

A simple explanation for this is the fact that fiscal policies directly affects the spending of individuals or governments. As such, a cut in taxes for example will immediately make people better off with more disposable income that they can spend immediately.

Monetary policy usually is a long term effect as for example a change in interest rates may not affect people immediately as they may have already borrowed at a previous rate and would need to refinance to take advantage of this new rate which may take time. Furthermore, people generally tend to wait and see for future options before making decisions on money matters.

So, comparatively monetary policy may take a little longer.

Hope that helps.