What Is One Reason for the Existence of Policy Lags

question 126

Multiple Choice

What is one reason for the existence of policy lags?

• A) Government experts are slow in figuring out what is going on.
• B) Households and firms plan their spending in advance and therefore are slow in responding to changes in interest rates.
• C) It is impossible to build an accurate model of the economy.
• D) It is difficult for the Bank of Canada to change the bank rate in a timely manner.

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Definitions:

Amortized

The process of gradually writing off the initial cost of an asset or paying down a debt over a period of time through regular payments.

Available-For-Sale Securities

Securities that management expects to sell in the future but which are not actively traded for profit.

Actively Traded

This describes securities or assets that have high trading volumes and liquidity in financial markets.

Realized Gain

The profit earned from the sale of an asset when the sale price exceeds the purchase price, which has become actual rather than just theoretical.