Which of the Following Illustrates the Effectiveness Lag

question 3

Multiple Choice

Which of the following illustrates the effectiveness lag?

• A) Policymakers believe an economic downturn has occurred,but they decide not to take action until they are sure.
• B) Policymakers are in the process of proposing policy measures to deal with the current economic slowdown.
• C) Policymakers first learn of the recession when it is five months old.
• D) Policymakers implement policy X,but it will be a few months before it starts working.
• E) Policymakers agree to policy X,but it will be at least two months before the policy is implemented.

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Definitions:

Backward-Bending

Refers to a labor supply curve that bends backwards at higher wage rates, indicating that higher wages can lead to less labor supplied due to increased leisure preference.

Substitution Effect

A change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one good for another.

Income Effect

The alteration in a person's or an economy's earnings and its effect on the amount of a good or service they want to purchase.

Labor Supply Curve

Represents the relationship between the wage rate and the quantity of labor that workers are willing to supply, typically showing that higher wages attract a larger labor supply.