What is the term for the time lag between when the government applies an economic policy and when its effects are felt in the economy?
A. Monetary policy
B. Disinflation
C. Lag effect
D. Multiplier effect
Answer (2)
The correct answer is C. Lag effect.The lag effect refers to the delay between when a government or central bank implements an economic policy (like changing interest rates or government spending) and when the results of that policy are actually observed in the economy. This time lag happens because it takes time for businesses, consumers, and markets to respond to the changes.Other OptionsA. Monetary policy - This is a type of economic policy involving control over money supply and interest rates but does not describe the delay in effect.B. Disinflation - This means a decrease in the rate of inflation, not related to timing delays.D. Multiplier effect - This describes how an initial change in spending leads to a larger overall increase in national income, not the delay between policy and effect.
The correct answer is letter C. Lag effectIn economics, a lag effect refers to the delay between when a government or central bank applies a policy and when it actually affects the economy. This is important because results don’t happen overnight—sometimes it takes months for people and businesses to feel the changes.For example, when the BSP raises interest rates, consumers won’t immediately stop spending. It takes time for banks to adjust loan rates, for people to delay purchases, and for businesses to cut down borrowing. These changes only show up after several weeks or months.In the Philippines, if inflation is rising too fast, the government or BSP might act fast—but the public reaction is slow. This is why economic planning must anticipate the future, not just react to the present. Otherwise, the solution might come too late or be too strong, causing new problems.The lag effect is one reason why central banks use forecasts and inflation targets—so they can act early enough before inflation or recession gets worse.
