MindTap Economics, 1 term (6 months) Printed Access Card for Mankiw's Principles of Macroeconomics, 8th (MindTap Course List)
8th Edition
ISBN: 9781337096591
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 23, 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
Concept introduction:
Monetary policy: It refers to the credit
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Chapter 23 Solutions
MindTap Economics, 1 term (6 months) Printed Access Card for Mankiw's Principles of Macroeconomics, 8th (MindTap Course List)
Ch. 23.1 - Prob. 1QQCh. 23.2 - Prob. 2QQCh. 23.3 - Prob. 3QQCh. 23.4 - Prob. 4QQCh. 23.5 - Prob. 5QQCh. 23.6 - Prob. 6QQCh. 23 - Prob. 1CQQCh. 23 - Prob. 2CQQCh. 23 - Prob. 3CQQCh. 23 - Prob. 4CQQ
Ch. 23 - Prob. 5CQQCh. 23 - Prob. 6CQQCh. 23 - Prob. 1QRCh. 23 - Prob. 2QRCh. 23 - Prob. 3QRCh. 23 - Prob. 4QRCh. 23 - Prob. 5QRCh. 23 - Prob. 6QRCh. 23 - Prob. 7QRCh. 23 - Prob. 8QRCh. 23 - Prob. 9QRCh. 23 - Prob. 10QRCh. 23 - Prob. 1PACh. 23 - Prob. 2PACh. 23 - Prob. 3PACh. 23 - Prob. 4PACh. 23 - Prob. 5PACh. 23 - Prob. 6PACh. 23 - Prob. 7PACh. 23 - Prob. 8PA
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