Adjusting monetary growth based on previous changes in nominal GDP
A) is relatively easy for the Fed to undertake because the implementation lag is quitelong.
B) could be destabilizing because of the uncertainty of the length of impact lags.
C) is an effective policy because it allows the Fed to influence future macroeconomic performance.
D) raises the price level proportionately.

Question

Quizplus · Accepted Answer

Adjusting monetary growth based on past changes in nominal GDP can be destabilizing due to the uncertainty and variability in the time it takes for monetary policy to affect the economy, known as impact lags.

Adjusting Monetary Growth Based on Previous Changes in Nominal GDP