Describe, in general terms, the lags in the effects of monetary policy on interest rates, output, and prices. Be sure to note how long it takes each variable to respond to policy changes
What will be an ideal response?
Interest rates respond quickly to changes in monetary policy, reacting within the first month. But the effect is transitory, and after 6 to 12 months, the interest rate has returned most of the way to its original value. Output and prices barely respond to a change in monetary policy at first. Output begins to change after about 4 months, with the full effect being felt about 16 to 20 months after the initial policy change. The price level doesn't change much until about a year after the change in policy.
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Which of the following situations would be inconsistent with the others?
A) A deficit in the current account B) gross national expenditure being greater than gross national disposable income C) Net lending to the rest of the world D) A surplus in the financial account and capital account
Prospect theory:
A. is an alternative to expected utility theory that may resolve a number of puzzles related to risky decisions and was proposed by Daniel Kahneman and Amos Tversky. B. gave puzzling results with respect to risky decisions and was improved by Daniel Kahneman and Amos Tversky's expected utility theory. C. is an alternative to expected utility theory that may resolve a number of puzzles related to risky decisions and was proposed by John Nash. D. gave puzzling results with respect to risky decisions and was improved by John Nash's expected utility theory.