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Problem of time lags in enacting and applying fiscal policy

In brief state and evaluate the problem of time lags in enacting & applying fiscal policy. 

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This takes time to ascertain the direction wherein the economy is moving (recognition lag), to obtain a fiscal policy enacted into law (administrative lag); and for the policy to have its full influence on the economy (operational lag). In the meantime, other factors may change, rendering inappropriate a specific fiscal policy. Nevertheless, discretionary fiscal policy is a valued tool in preventing severe recession or severe demand-pull inflation.

 

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