Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e.,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

Question

Quizplus · Accepted Answer

When the Fed implements expansionary monetary policy too late, during a period when the economy is already recovering, it can lead to excessive demand. This can push the economy from a recessionary gap, where output is below potential, to an inflationary gap, where output exceeds the economy's long-run sustainable level, leading to inflation.

Assume That Because of a Long Policy Lag,the Fed Starts