What are policy lags? Explain the three policy lags faced by the Fed when implementing monetary policy
What will be an ideal response?
Policy lags refer to the time between when a shock occurs in an economy and the time when the policy actually affects the economy.
1. Recognition lags refer to the period of time between when a shock occurs and when policymakers, such as the Fed, recognize that the shock has occurred.
2. Implementation lags refer to the period of time between when policymakers recognize that a shock has occurred and when they adjust policy to the shock.
3. Impact lags are the period of time between a policy change and the effect of that policy change on real GDP, employment, inflation, and other economic variables.
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For a linear demand curve
A. elasticity is constant along the curve. B. elasticity is unity at every point on the curve. C. demand is elastic at high prices. D. demand is elastic at low prices.
The financial account is defined as
A) the value of the country's net sales of assets. B) the sum of net exports, net income received from investments abroad, and net transfers abroad. C) the sum of gross income received from investments abroad and as net transfers abroad. D) net transfers abroad.
If the potential money multiplier in the U.S. is 4, then a simple $1 increase in demand deposits—say a young child opening up her very own checking account—can potentially create demand deposits (including the child's $1) of
a. $40.00 b. $4.00 c. $2.50 d. $0.40 e. $0.25
The adaptive rationality standard:
A. takes people's goals as given and assumes that people are efficient at pursuing whatever goals they happen to hold at the moment of action. B. assumes that people act in their own self-interest because cooperating with others is irrational. C. argues that people are only able behave rationally if they are aware of how their actions affect others. D. assumes that people's goals are themselves a choice variable and that people's choices about which goals to pursue are made efficiently.