Suppose it takes roughly two years for monetary policy to have a significant impact on inflation. If inflation is currently low but policymakers believe inflation will rise over the next two years with an unchanged stance of monetary policy,when should they tighten monetary policy to prevent the inflationary surge?
A)now
B)wait until overt signs of inflation appear
C)next year
D)two years later

Question

Quizplus · Accepted Answer

Given the two-year lag in the impact of monetary policy on inflation, if policymakers anticipate a rise in inflation over the next two years, they should act now (A) to adjust the policy in time to prevent the anticipated inflationary surge.

Suppose It Takes Roughly Two Years for Monetary Policy to Have