What is the principal reason that monetary policy has lags?
A)It takes a long time for changes in the interest rate to change aggregate demand.
B)It takes a long time for changes in the money supply to change interest rates.
C)It takes a long time for the Bank of Canada to make changes in policy.
D)It takes a long time for the government to pass the necessary laws.

Question

Quizplus · Accepted Answer

Monetary policy has lags primarily because it takes time for changes in interest rates to impact aggregate demand. For example, if the Bank of Canada raises interest rates, it may take several months for consumers and businesses to adjust their spending and investment decisions in response to the higher borrowing costs. This lag can make it difficult to fine-tune monetary policy to stabilize the economy.

What Is the Principal Reason That Monetary Policy Has Lags