One of the difficulties the Fed experiences when implementing monetary policy is:
A) frequent shifts in the economy, which make it difficult to choose between expansionary and contractionary policy.
B) the time it takes for monetary policy to affect the economy once enacted.
C) avoiding political interference from Congress.
D) deciding whether to use open market operations, the discount window, or reserve requirements to adjust the money supply.

Question

Quizplus · Accepted Answer

The time lag between implementing monetary policy and its effect on the economy is one of the biggest difficulties faced by the Fed. It can take several months for changes in interest rates or the money supply to have an impact on economic growth or inflation. This lag time makes it difficult to fine-tune policy and can require the Fed to make estimates about the state of the economy and the appropriate policy actions well into the future. The other choices may also pose challenges, but the time lag is the most significant obstacle to effective monetary policy.

One of the Difficulties the Fed Experiences When Implementing Monetary