Problem: What lag in discretionary policy is described in each of the following statements? Why do long lags make discretionary policy less effective?
1. The time from when the government determines that the economy is in recession until a tax cut is approved to reduce unemployment.
2. The time from when the money supply is increased until the resulting effect on the economy is felt.
3. The time from the start of a recession until the government identifies the existence of severity of the recession.
4. The time from when the Fed decides to reduce the money supply until the money supply actually declines.