A central bank can control the real interest rate precisely, so ...

[Shelles]

A central bank can control the real interest rate precisely, so long as ________ remains constant.
 
  A) the nominal interest rate
  B) monetary policy
  C) expected inflation
  D) all of the above
  E) none of the above

Question 2

What are policy lags? Explain the three policy lags faced by the Fed when implementing monetary policy.
 
  What will be an ideal response?

[sokh]

Answer to Question 1

C

Answer to Question 2

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.

[Shelles]

Thank you

[sokh]

No problemo