Monetary policy affects the economy with a long lag, in part because
A)proposals to change monetary policy must go through both the House and Senate before being sent to the president.
B)monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly.
C)changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.
D)changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.

Question

Quizplus · Accepted Answer

Monetary policy primarily affects the economy through its influence on investment spending. Firms often plan their investments well in advance, and changes in interest rates can take time to significantly impact these plans, leading to the long lag in the effects of monetary policy.

Monetary Policy Affects the Economy with a Long Lag, in Part