ECON 0110 Lecture Notes - Lecture 19: Balanced Budget Amendment, Bachelor Of Business Administration
Document Summary
Deliberate changes in government spending and taxing to influence the economy. When the economy is contracting, we should try to stimulate the economy to reduce unemployment. Sometimes, when the economy is expanding too rapidly, we try to dampen the economy a bit to reduce the threat of inflation. This sometimes is called leaning against the wind . Recall that a balanced budget amendment is pro-cyclic. Enforcing a bba during a recession will make the recession worse. It can be difficult to implement discretionary fiscal policy effectively. Fiscal policy usually requires a long time period to take effect. Thus, by the time a policy is enacted and takes effect, it is possible that it is no longer needed. The time it takes for policy makers to recognize that the economy is in a recession. Implementation lag (or legislative lag, or administrative lag) The time it takes to pass laws and put the desired policy into effect.
