Which of the following factors mostly determines the lag problem associated with monetary policy?
A) the fact that business firms make investment plans far in advance
B) the political system of checks and balances that slows down the process of determining monetary policy
C) the time it takes for changes in government spending to affect the interest rate
D) growth in the money supply is too slow

Question

Quizplus · Accepted Answer

The lag problem associated with monetary policy is mostly determined by the fact that business firms make investment plans far in advance. This means that changes in interest rates brought about by monetary policy may take some time to fully impact the economy, as businesses may have already committed to certain investments based on previous interest rates.

Which of the Following Factors Mostly Determines the Lag Problem