What is the main 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 because it takes a long time for changes in the interest rate to change aggregate demand. This is because it takes time for households and firms to adjust their spending and investment decisions in response to changes in interest rates. Additionally, changes in monetary policy may not immediately impact certain sectors of the economy, leading to further lag in the transmission of policy.

What Is the Main Reason That Monetary Policy Has Lags