1)How long does it take for economic policy to actually affect the economy?

2)What should have been India's economic policy in 1947, considering the circumstances that India was in, instead of the mixed economic model? Give objective and tangible answers.

1)For Fiscal policy, as soon the government spends the dollar, the actors of the economy respond. Basically contemporaneous with the spending. The decrease in taxes acts much slower as they only influence behavior at the margin and depending on the specific cut may not take effect for over a year.

If we talk about the monetary policy, it also acts much slower on average than fiscal spending, typically the effects are said to take between 9 and 18 months to reset expectations. Although when the Federal Reserve makes a dramatic change the expectations might be reset that afternoon ?it will still take several months for the behavioral changes to catch up with expectations.

2)The circumstances that India was in during 1947, the government intervention was imperative. However, after more than 70 years of independence, many policymakers are of the view that the Soviet model adopted by the first Prime Minister, Jawaharlal Nehru, fails to contribute to the growth of the economy of India. A mixed economic model was adopted after 1991 when India brought several reforms in the economy. The reforms were related to the privatization and liberalization; however, intervention by the government was not completely eliminated.

It is important to note that there is nothing wrong with the mixed economic system, but the problem with India's mixed economic system was that it was highly skewed towards socialism and less with capitalism. This socialism-skewed mixed economic system resulted in the failure of India to realize its potential to expand the production of goods and services. The mixed economic system failed to provide enough employment in the economy; that is why India needed the capitalistic form of an economic system with little government intervention.