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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

How might each of the following factors complicate the implementation of monetary policy: long and variable lags, excess reserves, and movements in velocity?

To determine

The effects of long and variable lags, excess reserves, and movement in velocity while executing the monetary policies.

Explanation

The effects of (a) long and variable lags, (b) excess reserves, and (c) movement in velocity over the implementation of monetary policy are irregular. These factors affect the implementation of the monetary policy and make it inevitably imprecise; hence, these are also known as pitfalls for monetary policy. Following are the ways each factor complicate the implementation of monetary policy:

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