Why are there significant time lags in monetary policy?
A) Financial markets are inefficient and information takes several months to impact them.
B) Changes in monetary policy only affect future projects such as factories,not current ones.
C) Interest rates takes several months to change after a change in money supply.
D) Interest rates are fixed and it takes several months to change laws to have the targets amended.
E) Because of the Fed's relative inability to convince Congress about the necessity of a particular monetary policy.

Question

Quizplus · Accepted Answer

Monetary policy affects the economy with a lag because it influences future investment and spending decisions, such as building new factories, rather than immediate changes.

Why Are There Significant Time Lags in Monetary Policy