Because different jobs require different skills and pay different wages unemployed workers may not accept the first job offer they receive wait unemployment is the unemployment resulting from wage rigidity and job rationing.These workers are unemployed not because they are actively searching for a job that best suits their skills (as in the case of frictional unemployment), but because at the prevailing real wage the supply of labor exceeds the demand.If the wage doe not adjust to clear the labor market,then th e workers must "wait"for jobs to become available.Wait unemployment thus arises because firms fail to reduce wages despite an excess supply of labor. 6 Which has the longer inside lag monetary or fiscal policy?Which has the longer outside lag?Why? 6.The inside lag is the time it takes for polieymakers to recognize that a shock has hit economy and to put the appropriate policies into effect.Oncea policy is in place,outside lag is the amount of time it takes for the policy action to influence the econom This lag arises because it takes time for spending,income,and employment to respond to the change in 习8甲Xw3u0叫u143800一8湖p5叫8和018s0e proposed until it becomes law.Monetary policy has a relatively inside lagOnce the Fed decides a policy change is needed,it can make the change days or weeks. Monetary policy.however.has a long outside lagAn increase in the money affects the low s invest But many firm investmen t plans fa r in a dvance.Th from the time the Fa takes oout si months before the effects show up in real GDP 7.What is meant by the "time inconsisteney"of economic policy?Why might mpted on an cement they made earlier?In situ n,wh at is is the advantage of a policy rule? 7.The problem of time inconsistency arises because expectations of future policies a how people act todav.As a result.policymakers may want to announce today they intend to follow in the future,in order to influence the expectations held by decisi On decisionm rs have acted on thei r expe the policymakers may be tempted to renege on their announcement For example vour professor has an incentive to announce that there will be an exam in your course.so that you study and learn the material.On the morning on exam,when you have already studied and learned all the material,the professor must be tempted to cal the m so that he she do not H Similarly,the goverment has an nce ve to announce that it will not negotiatior with terrorists.If terrorists believe that they have nothing to gain by kidnapping hostages,then they will not do so.However,once hostages are kidnapped,the government faces a strong temptation to negotiate and make concessions.in monetary policy.suppose the Fed announces a policy of low inflation,everyone believes theBecause different jobs require different skills and pay different wages, unemployed workers may not accept the first job offer they receive. In contrast, wait unemployment is the unemployment resulting from wage rigidity and job rationing. These workers are unemployed not because they are actively searching for a job that best suits their skills (as in the case of frictional unemployment), but because at the prevailing real wage the supply of labor exceeds the demand.If the wage does not adjust to clear the labor market,then these workers must “wait” for jobs to become available. Wait unemployment thus arises because firms fail to reduce wages despite an excess supply of labor. 6 Which has the longer inside lag—monetary or fiscal policy?Which has the longer outside lag? Why? 6.The inside lag is the time it takes for policymakers to recognize that a shock has hit economy and to put the appropriate policies into effect.Once a policy is in place,outside lag is the amount of time it takes for the policy action to influence the econom This lag arises because it takes time for spending,income,and employment to respond to the change in policy. Fiscal policy has a long inside lag—for example,it can take years from the time tax change is proposed until it becomes law.Monetary policy has a relatively inside lag.Once the Fed decides a policy change is needed,it can make the change days or weeks. Monetary policy,however,has a long outside lag.An increase in the money affects the economy by lowering interest rates,which,in turn,increases investment. But many firms make investment plans far in advance.Thus,from the time the Facts,it takes about six months before the effects show up in real GDP. 7.What is meant by the “time inconsistency’’ of economic policy? Why might policymakers be tempted to renege on an announcement they made earlier? In this situation,what is the advantage of a policy rule? 7.The problem of time inconsistency arises because expectations of future policies a how people act today.As a result,policymakers may want to announce today they intend to follow in the future,in order to influence the expectations held by private decisionmakers.Once these private decisionmakers have acted on their expections,the policymakers may be tempted to renege on their announcement. For example,your professor has an incentive to announce that there will be an exam in your course,so that you study and learn the material.On the morning on exam,when you have already studied and learned all the material,the professor must be tempted to cancel the exam so that he or she does not have to grade it. Similarly,the government has an incentive to announce that it will not negotiation with terrorists.If terrorists believe that they have nothing to gain by kidnapping hostages,then they will not do so.However,once hostages are kidnapped,the government faces a strong temptation to negotiate and make concessions. In monetary policy,suppose the Fed announces a policy of low inflation, everyone believes the