A.
The U.S. government debates a public works program and chooses not to spend money on new highways and railroads.
B.
Corporations respond slowly to increases in interest rates by reducing their planned investment for future years.
C.
Members of the Board of Governors refuse to lower the discount rate until several months after a recession has begun.
D.
Individual banks ignore a reduction in the required reserve ratio and hold excess reserves.
1 answer
C. Members of the Board of Governors refuse to lower the discount rate until several months after a recession has begun.
Inside lag in monetary policy refers to the delay in the implementation of policy measures due to decision-making processes, such as the time taken for policymakers to recognize economic changes and to act on them. Option C illustrates this concept as it describes a delay in responding to a recession, which is a clear example of inside lag.
