Which statement is TRUE about the difference between monetary and fiscal policy?
A) Fiscal policy is more quickly implemented.
B) There is little debate over the appropriate fiscal policy response.
C) Monetary policy is subject to long lags.
D) Monetary policy can affect the economy regardless of the actions banks take.

Question

Quizplus · Accepted Answer

Monetary policy is subject to longer lags than fiscal policy. This is because the actions taken by the central bank need time to be transmitted through the financial system and ultimately impact the real economy. Fiscal policy, on the other hand, can be implemented relatively quickly through changes in government spending or taxation.

Answer: D
 Monetary policy can affect the economy regardless of the actions banks take because central banks have the ability to set interest rates and control the money supply. Even if banks choose not to lend or borrow money, changes in the interest rate can impact spending and investment in the economy. Fiscal policy, however, is dependent on the actions of the government and the willingness of the private sector to spend or invest in response to those policies.

Which Statement Is TRUE About the Difference Between Monetary and Fiscal