The Problem of Lags Suggests That Monetary Policy Should

question 178

Multiple Choice

The problem of lags suggests that monetary policy should

• A) respond swiftly to statistical reports of economic conditions in the recent past.
• B) respond to conditions expected to exist in the future.
• C) stagger its implementation of policies so that there will be an ongoing effect on the economy.
• D) not respond to changing economic conditions in the economy but instead rely on the economy's self correcting mechanism.

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Definitions:

Mantle

The thick layer of rock between the Earth's crust and core, playing a key role in tectonic movement and heat transfer.

Core

The innermost layer of the Earth, composed of an iron-nickel alloy and divided into a solid inner core and a liquid outer core.

Lithosphere

The rigid outer layer of the Earth, consisting of the crust and the upper mantle.

Asthenosphere

The viscous, semi-fluid layer of the Earth's mantle located below the lithosphere, involved in plate tectonic movements and convection currents.