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OUTSIDE LAG: In the context of economic policies, the time between corrective government action responding to a shock to the economy and the resulting affect on the economy. This is one of two primary lags in the use of economic policies. The other is inside lag, the time between a shock to the economy and corrective government action responding to the shock. The length of the outside lag, also termed impact lag, is primarily based on the speed of the multiplier process and is essentially the same for both fiscal and monetary policy. The length of the inside and outside lags is one argument against the use of discretionary policies to stability business cycles.

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PRIVATE SECTOR:

The combination of households and businesses into a single group. It is termed the private sector to indicate that decisions are made by private individuals (either consumers or producers) in pursuit of their personal self-interests. The contrasting phrase is public sector, in which decisions are made by governments on behalf of the public.
The private sector is comprised of the household sector and the business sector, but excludes the government sector. While the private sector, in essence, includes every member of society, it does not include everything that everyone does. The private sector is best specified from a functional perspective--by what people do, not who they are. People are part of the private sector when they are buying goods, working in factories, running companies, and engaging in market exchanges. However, they are part of the public sector when they are serving in elected public offices, working in the military, or working for a government agency.

Two Sectors

The private sector includes the household sector and the business sector.
  • Household Sector: The household sector includes the entire, wants and-needs-satisfying population of the economy when that population is engaged in eating, breathing, and consuming. This sector includes everyone seeking to satisfy unlimited wants and needs, when they are busy seeking to satisfy unlimited wants and needs.

  • Business Sector: The business sector contains the private, profit-seeking firms in the economy that combine scarce resources into the production of wants-and-needs satisfying goods and services. The key economic function of the business sector is the production of goods and services.

An Ongoing Allocation Debate

A distinction between the private sector and the public sector reflects the two basic methods of answering the three questions of allocation--markets and government. The private sector relies on markets and the private ownership and control of resources for voluntary allocation decisions. The public sector relies on government decisions that are involuntarily imposed on the economy that (in theory at least) are made on behalf of the public.

The terms private sector and public sector reflect the ongoing debate over the degree of government involvement in the economy. Some debaters (liberals) say that a lot of involvement is needed, others (conservatives) say very little is needed. While this debate is unlikely to be concluded (EVER!), evidence to date indicates some government intervention can be useful, just not too much.

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Recommended Citation:

PRIVATE SECTOR, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 8, 2025].


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And For Further Study...

     | government functions | macroeconomic sectors | household sector | business sector | government sector | foreign sector | four estates | economic system | distribution standards | ownership and control | three questions of allocation |


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