What is the main reason why monetary policy has lags?
A) It takes a long time for changes in the interest rate to change aggregate demand.
B) It takes a long time for changes in the money supply to change interest rates.
C) It takes a long time for the Bank of Canada to make changes in policy.
D) It takes a long time for the government to pass the necessary laws.

Question

Quizplus · Accepted Answer

Monetary policy has lags because it takes a long time for changes in the interest rate to change aggregate demand. It can take several months or even years for the effects of monetary policy to fully impact the economy. This is because it takes time for businesses and households to adjust their spending and investment decisions in response to changes in interest rates.

What Is the Main Reason Why Monetary Policy Has Lags