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Unformatted text preview: The delays created by lags can have one final and very important effect. If lags are so long that the economy corrects itself before the macroeconomic policies take effect, then the policies can actually worsen the situation. For instance, if the government uses fiscal policy to stimulate the economy, but the economy begins to correct itself before the policy takes effect, then the economy will be over-stimulated, resulting in possible inflation. There is little that can be done to correct lags. Because the macroeconomy is constantly fluctuating, it is impossible to simply begin policies when a change is detected. The presence of lags must be acknowledged and accounted for as a necessary evil implicit in macroeconomic policy. By using macroeconomic policy judiciously and in small increments, dangerous situations created by lags can be avoided....
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- Fall '08