Why are many economists skeptical of the Fed's ability to fine tune the economy?
A) Monetary policy only affects output in the long run.
B) Lags in policy make it difficult to properly time policy.
C) Fiscal policy can be implemented more quickly than monetary policy.
D) Monetary policy does not have any effect on output.

Question

Quizplus · Accepted Answer

Many economists are skeptical of the Fed's ability to fine tune the economy because lags in policy make it difficult to properly time policy. Monetary policy affects the economy with a lag, meaning that it takes time before the effects of any interest rate changes or other monetary policy actions become visible in the economy. This means that the Fed may need to forecast economic conditions months or even years in advance to use their tools effectively, which can be highly challenging.

Why Are Many Economists Skeptical of the Fed's Ability to Fine