Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009?
A) The Fed does not have the tools needed to alter the supply of money.
B) Monetary policy is unable to alter short-term interest rates.
C) The time lags between changes in monetary policy and when the changes exert an impact on output and prices are long and variable.
D) It takes the Fed a long time to change the direction of monetary policy.

Question

Quizplus · Accepted Answer

The time lags between changes in monetary policy and their effects on the economy are long and variable, which makes it difficult for the Fed to direct the economy back to full employment and price stability quickly. Additionally, monetary policy may be constrained by other factors such as the zero lower bound on interest rates and limitations on the types of assets the Fed can purchase. Therefore, while monetary policy can play a role in stabilizing the economy, it is not a panacea for all economic problems.

Why Will It Difficult for the Fed to Use Monetary