Time taken for the monetary policy to influence aggregate demand.

Question

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Answer 1

Question

Chapter 18, Problem 1CQQ

To determine

Time taken for the monetary policy to influence aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

Many studies suggest that it takes at least 6 months for the monetary policy to have an effect on aggregate demand. Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance; as a result, there is a time lag for changes in interest rate to alter the aggregate demand for goods and services Thus, option ‘b’ is correct.

Option (a):

Monetary policy works with a lag and hence, one month is insufficient for the monetary policy to reflect changes in the economy. Thus, option ‘a’ is incorrect.

Option (c):

Long lags suggest a policy that is passive rather than active, and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Two years is a long lag and thus, option ‘c’ is incorrect.

Option (d):

Long lags suggest a policy that is passive rather than active and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Five years is a really long lag and thus,option ‘d’ is incorrect.

Economics Concept Introduction

Monetary policy: It refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

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Answer 2

Question

Chapter 18, Problem 1CQQ

To determine

Time taken for the monetary policy to influence aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

Many studies suggest that it takes at least 6 months for the monetary policy to have an effect on aggregate demand. Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance; as a result, there is a time lag for changes in interest rate to alter the aggregate demand for goods and services Thus, option ‘b’ is correct.

Option (a):

Monetary policy works with a lag and hence, one month is insufficient for the monetary policy to reflect changes in the economy. Thus, option ‘a’ is incorrect.

Option (c):

Long lags suggest a policy that is passive rather than active, and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Two years is a long lag and thus, option ‘c’ is incorrect.

Option (d):

Long lags suggest a policy that is passive rather than active and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Five years is a really long lag and thus,option ‘d’ is incorrect.

Economics Concept Introduction

Monetary policy: It refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

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Answer 3

Question

Chapter 18, Problem 1CQQ

To determine

Time taken for the monetary policy to influence aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

Many studies suggest that it takes at least 6 months for the monetary policy to have an effect on aggregate demand. Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance; as a result, there is a time lag for changes in interest rate to alter the aggregate demand for goods and services Thus, option ‘b’ is correct.

Option (a):

Monetary policy works with a lag and hence, one month is insufficient for the monetary policy to reflect changes in the economy. Thus, option ‘a’ is incorrect.

Option (c):

Long lags suggest a policy that is passive rather than active, and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Two years is a long lag and thus, option ‘c’ is incorrect.

Option (d):

Long lags suggest a policy that is passive rather than active and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Five years is a really long lag and thus,option ‘d’ is incorrect.

Economics Concept Introduction

Monetary policy: It refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 18, Problem 1CQQ

To determine

Time taken for the monetary policy to influence aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

Many studies suggest that it takes at least 6 months for the monetary policy to have an effect on aggregate demand. Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance; as a result, there is a time lag for changes in interest rate to alter the aggregate demand for goods and services Thus, option ‘b’ is correct.

Option (a):

Monetary policy works with a lag and hence, one month is insufficient for the monetary policy to reflect changes in the economy. Thus, option ‘a’ is incorrect.

Option (c):

Long lags suggest a policy that is passive rather than active, and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Two years is a long lag and thus, option ‘c’ is incorrect.

Option (d):

Long lags suggest a policy that is passive rather than active and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Five years is a really long lag and thus,option ‘d’ is incorrect.

Economics Concept Introduction

Monetary policy: It refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 18, Problem 1CQQ

To determine

Time taken for the monetary policy to influence aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

Many studies suggest that it takes at least 6 months for the monetary policy to have an effect on aggregate demand. Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance; as a result, there is a time lag for changes in interest rate to alter the aggregate demand for goods and services Thus, option ‘b’ is correct.

Option (a):

Monetary policy works with a lag and hence, one month is insufficient for the monetary policy to reflect changes in the economy. Thus, option ‘a’ is incorrect.

Option (c):

Long lags suggest a policy that is passive rather than active, and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Two years is a long lag and thus, option ‘c’ is incorrect.

Option (d):

Long lags suggest a policy that is passive rather than active and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Five years is a really long lag and thus,option ‘d’ is incorrect.

Economics Concept Introduction

Monetary policy: It refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Answer 6

Chapter 18, Problem 1CQQ

To determine

Time taken for the monetary policy to influence aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

Many studies suggest that it takes at least 6 months for the monetary policy to have an effect on aggregate demand. Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance; as a result, there is a time lag for changes in interest rate to alter the aggregate demand for goods and services Thus, option ‘b’ is correct.

Option (a):

Monetary policy works with a lag and hence, one month is insufficient for the monetary policy to reflect changes in the economy. Thus, option ‘a’ is incorrect.

Option (c):

Long lags suggest a policy that is passive rather than active, and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Two years is a long lag and thus, option ‘c’ is incorrect.

Option (d):

Long lags suggest a policy that is passive rather than active and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Five years is a really long lag and thus,option ‘d’ is incorrect.

Economics Concept Introduction

Monetary policy: It refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Answer 7

Chapter 18, Problem 1CQQ

To determine

Time taken for the monetary policy to influence aggregate demand.

Answer 8

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Option (b):

Many studies suggest that it takes at least 6 months for the monetary policy to have an effect on aggregate demand. Monetary policy affects aggregate demand primarily by changing interest rates. However, mostly households and firms set their spending plans in advance; as a result, there is a time lag for changes in interest rate to alter the aggregate demand for goods and services Thus, option ‘b’ is correct.

Option (a):

Monetary policy works with a lag and hence, one month is insufficient for the monetary policy to reflect changes in the economy. Thus, option ‘a’ is incorrect.

Option (c):

Long lags suggest a policy that is passive rather than active, and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Two years is a long lag and thus, option ‘c’ is incorrect.

Option (d):

Long lags suggest a policy that is passive rather than active and such long gaps have an opposite effect on the economy (destabilization) as the economic conditions change from time to time. Five years is a really long lag and thus,option ‘d’ is incorrect.

Answer 12

Economics Concept Introduction

Monetary policy: It refers to the credit control system adopted by the central bank of a country with an aim to achieve its macroeconomic policy objectives.

Answer 13

Ch. 18.1 - Prob. 1QQ Ch. 18.2 - Prob. 2QQ Ch. 18.3 - Prob. 3QQ Ch. 18.4 - Prob. 4QQ Ch. 18.5 - Prob. 5QQ Ch. 18.6 - Prob. 6QQ Ch. 18 - Prob. 1CQQ Ch. 18 - Prob. 2CQQ Ch. 18 - Prob. 3CQQ Ch. 18 - Prob. 4CQQ

Time taken for the monetary policy to influence aggregate demand.

Time taken for the monetary policy to influence aggregate demand.

Answer to Problem 1CQQ

Explanation of Solution

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Chapter 18 Solutions