State which limitation of monetary policy best describes the following circumstances. That is, does it cause...

State which limitation of monetary policy best describes the following circumstances. That is, does it cause a recognition lag, an implementation lag, or an impact lag.

A) A firm puts off purchasing a new building until it's sure long run interest rates will react to a cut in the Federal Funds rate.

B) A recession begins due to falling business optimism and falling planned investment but the Fed isn't monitoring investors sentiment very closely and doesn't know about the recession.

C) The FOMC meets but can't come to a conclusion as to what the proper course of action should be.

D) A bubble forms in the stock market setting up the stage for a crash but the Fed isn't able to tell the market is overvalued.

Expert Solution

A) A firm puts off purchasing a new building until it's sure long run interest rates will react to a cut in the Federal Funds rate - Impact lag or response lag is the time it takes for corrective monetary policy to affect the economy once it has been implemented. Here, the time lag incurred till interest rates react to a cut in Fed Funds rate is an impact lag.

B) A recession begins due to falling business optimism and falling planned investment but the Fed isn't monitoring investors sentiment very closely and doesn't know about the recession. - Recognition lag is the amount of time it takes for monetary authorities to recognize a problem in the economy. This type of lag occurs primarily because it takes time for the economy to be tracked and for economic reports to be published, also because many economic indicators are backward looking and tell the story that has happened instead of what is happening now.

C) The FOMC meets but can't come to a conclusion as to what the proper course of action should be. - Once a problem has been identified, a course of action needs to be decided. A decision lag is the amount of time it takes for monetary authorities to make a decision regarding how best to handle an economic problem.

D) A bubble forms in the stock market setting up the stage for a crash but the Fed isn't able to tell the market is overvalued.- Recognition lag is the amount of time it takes for monetary authorities to recognize a problem in the economy.

Rahul Sunny answered 8 months ago

Which of the following best describes the difference between monetary policy and fiscal policy? Monetary policy...

Which of the following best describes the difference between monetary policy and fiscal policy? Monetary policy is quicker to implement but has a longer effect lag than fiscal policy. Monetary policy is slower to implement but has a longer effect lag than fiscal policy. Monetary policy is quicker to implement but has a shorter effect lag than fiscal policy. Monetary policy is slower to implement but has a shorter effect lag than fiscal policy.

Which of the following best describes the process (in order) of how monetary policy effects the...

Which of the following best describes the process (in order) of how monetary policy effects the macroeconomy? A. The 3 players have to cooperate, the aggregate demand changes, interest rate change, investment and consumption change and then the money supply changes. B. The 3 players have to cooperate, the money supply changes, interest rate change, investment and consumption change, and then the aggregate demand changes. C. They 3 players have to cooperate, interest rate change, the money supply changes, investment...

Which of the following is a limitation of monetary policy: 1. The central bank cold lose...

Which of the following is a limitation of monetary policy: 1. The central bank cold lose control over domestic money supply and interest rates, which can become more volatile 2. The foreign currency can come under speculative attacks and lose significant value, which can eventually lead to a full-blown crisis. 3. The central bank could maintain too much control over domestic money supply and interest rates, which can become more volatile exchange rate targeting.

Which statement best describes the Federal Reserve timeframe for monetary policy implementation and observable policy effect?...

Which statement best describes the Federal Reserve timeframe for monetary policy implementation and observable policy effect? short implementation time with a long lag before observation of effectiveness long implementation time with a short lag before observation of effectiveness short implementation time with a short lag before observation of effectiveness long implementation time with a long lag before observation of effectiveness short implementation time with a no lag before observation of effectiveness long implementation time with a no lag before observation...

Which of the following best describes the Keynesian monetary transmission mechanism? A. An increase in the...

Which of the following best describes the Keynesian monetary transmission mechanism? A. An increase in the money supply causes a decrease in the interest rate, which shifts the investment function and the aggregate demand curve rightward. B. An increase in the money supply causes a decrease in the interest rate, which increases the amount of investment and shifts the aggregate demand curve leftward. C. An increase in the money supply causes a decrease in the interest rate, which shifts the...

Which of the following statements would you say best reflects monetary policy? a. It is a...

Which of the following statements would you say best reflects monetary policy? a. It is a lot like gambling because the outcomes are most of the time uncertain. b. There is certainly some science involved, a lot of understanding that is needed, but a lot of uncertainty still remains. c.It is a hard and fast science. d. It is a hard and fast science.

Which of the following accurately describes the circumstances in which an individual is considered to be...

Which of the following accurately describes the circumstances in which an individual is considered to be a resident of Canada? Question 1 options: 1) When the individual is a citizen of Canada 2) When 90% or more of the individual's income originates in Canada 3) When the individual maintains a continuing state of relationship with Canada 4) When the individual is domiciled in Canada for more than 3 months of the year

Which of the following best describes Federal Reserve policy during the 1961-2019 period?

Which of the following best describes Federal Reserve policy during the 1961-2019 period?a. The Fed followed pro-cyclical policy during 1987-2019, but not during 1961-1986.b. The Fed followed counter-cyclical policy during 1987-2019, but not during 1961-1986.c. The Fed followed pro-cyclical policy during the whole 1961-2019 period.d. The Fed followed counter-cyclical policy during the whole 1961-2019 period.

Which of the following best describes ribosomes?

Which of the following best describes ribosomes? Hollow cytoskeletal elements that act as organizers for the cytoskeleton, especially in cell division Contain digestive enzymes to breakdown non-functional organelles and foreign bodies that enter the cell The site of protein synthesis. Dense spherical body in the nucleus which are the synthesis site for ribosomal RNA and ribosomal subunits Houses all genetic material for the cell including DNA and RNA.

Explain the differences between Monetary Policy and Fiscal Policy? Which policy do you think is best...

Explain the differences between Monetary Policy and Fiscal Policy? Which policy do you think is best at stabilizing the economy during a recession or continue GDP decline?

Question