Consumers and ﬁrms are likely to be more responsive to interest changes by the central bank in the short run than in the long run.

Question

Quizplus · Accepted Answer

In the short run, consumers and firms may not immediately adjust their spending and investment behaviors due to factors like existing contracts, adjustment costs, and the time it takes to change plans. In the long run, they are more likely to adjust their behaviors as they have more time to respond to interest rate changes, making them more responsive in the long run.

Consumers and ﬁRms Are Likely to Be More Responsive to Interest