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Time lags can adversely affect the efforts of the Congress and the President in attempting to maintain a healthy economy. There are three types of time lags: (Reem)
1. Recognition Time Lag: It usually is some time before we know when the economy has a decline or incline in activity. It also takes time to collect the information about the present situation of the economy. So, in other words the government is about 6 months behind the curve, when it comes to trying to jump-start the economy.
2. Action Time Lag: This is the time needed after acknowledging an economic problem and putting a policy into effect...
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Imagine that you were called in by the government to advice on how it should use macroeconomic policy to manage the cyclical fluctuations in the economy. What advice would you give and how would you justify the advice?
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