Explain what causes the lags in the effect of monetary and fiscal policy on aggregate demand? What are the implications of these lags for the debate over active versus passive policy?

  1. What causes the lags in the effect of monetary and fiscal policy on aggregate demand? What

are the implications of these lags for the debate over active versus passive policy?

  1. According to traditional Keynesian analysis, why does a tax cut have a smaller effect on GDP

 

than a similarly sized increase in government spending? Why might the opposite be the case?

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