Monetary policy and international trade: Issues with monetary policy

8.1 Issues with monetary policy

8.1.1 Time orientations

"Time orientations" refers to the recognition lag, the decision lag, and the implementation lag. You need to place each one of these lags in a timeframe and gain information about the complexity of policy-related actions or inaction. Keep in mind that some economists contend that monetary policy takes effect faster than fiscal policy, which is essentially the product of Congressional legislation. However, debates linger about which policy is the most effective at any given time.

8.1.2 Lender reluctance

Activities

Khan Academy: "Weaknesses of Fractional Reserve Lending"

• Watch this lecture about the weaknesses of fractional reserve lending.

8.1.3 The liquidity trap

Activities

OpenStax College: "Macroeconomics, Chapter 15, Section 5: Pitfalls for Monetary Policy"

• Read this section about the inability of low interest rates to induce borrowing by business for investment purposes.