The problem of lags suggests that monetary policy should
A) respond swiftly to statistical reports of economic conditions in the recent past.
B) respond to conditions expected to exist in the future.
C) stagger its implementation of policies so that there will be an ongoing effect on the economy.
D) not respond to changing economic conditions in the economy but instead rely on the economy's self correcting mechanism.

Question

Quizplus · Accepted Answer

The problem of lags refers to the delay in the effect of monetary policy on the economy. Therefore, it is better for monetary policy to respond to conditions expected to exist in the future, rather than past conditions, which may have already been affected by current economic policies. By doing so, the lag time between implementation and effect can be reduced.

The Problem of Lags Suggests That Monetary Policy Should