Asked by Chelsea Valencia on Jun 12, 2024
Verified
The longest and least predictable lag affecting the effectiveness of monetary policy is the
A) recognition lag
B) decision lag
C) impact lag
Monetary Policy
The management of a nation's money supply and interest rates by its central bank to control inflation and stabilize currency.
Recognition Lag
The delay between the onset of an economic problem and the time at which it is recognized by policymakers.
Decision Lag
The delay between recognizing the need for a decision and the actual implementation of that decision, often affecting the efficiency of response in economic policy.
- Understand the factors influencing the effectiveness of monetary policy.
Verified Answer
JU
Joseph UlengcoJun 15, 2024
Final Answer :
C
Explanation :
The impact lag refers to the time it takes for changes in monetary policy to affect the economy. This lag can be unpredictable and can vary depending on a number of factors, such as the structure of the economy and the behavior of consumers and businesses. The recognition lag refers to the time it takes policymakers to recognize that a problem exists and the decision lag refers to the time it takes for policymakers to implement a chosen policy. While both of these lags can also have an impact on the effectiveness of monetary policy, the impact lag is generally considered to be the longest and the most difficult to predict.
Learning Objectives
- Understand the factors influencing the effectiveness of monetary policy.