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Stabilization
When governments attempt to control the economy through fiscal policy, they are applying what is known as stabilization policy. These policies are used in attempt to move the economy closer to full employment or potential output (Sheffrin & O'Sullivan 2006. pp.548). Some problems can occur, though, when trying to stabilize the economy. Such a problem is accidentally making the economic problem worse due to an ill-timed policy.
There are two main causes for policy lags. They are inside and outside lags. The reason for an inside lag is it takes time to devise a policy. Inside lag involves recognizing the problem, figuring out how to combat the problem, and enacting the proper procedures to fix the problem. Outside lag, on the other hand, is the time in which the policy takes to start working (Sheffrin & O'Sullivan 2006. pp.548-550).
The main danger of lags is its affect on unforeseen economic conditions. If an expansionary policy is adopted, but the......

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Approximate Word Count: 474
Approximate Pages: 2 (250 words per double-spaced page)

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