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7 December, 15:31

Why is coordination with monetary policy important to prevent lags in expansionary fiscal policy?

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  1. 7 December, 18:27
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    Explanation:One of the limitations of monetary policy in countercyclical manner is the existence of time lags. It takes time for the monetary authority to realise the need for action and its recognition, and the taking of action and the effect of the action on economic activity.

    Friedman defines "lag" as the timing relation between the resulting monetary series and resulting series of effects of monetary actions. According to him, monetary actions affect economic conditions only after a lag that is "both long and variable". Friedman distinguishes among three basic lags: the recognition lag the administrative lag, and the operation lag.
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