General Difficulties With Conducting Monetary Policy
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General difficulties with conducting monetary policy
- The monetary authority must make its decision on whether to increase or decrease the money supply based on current information (which is not complete) as well as forecasts of what the economic condition will be in the future (which are not perfect). As a result, there is the possibility that misinformation causes the monetary authority to implement the wrong policy.
- Though the monetary authority can react quickly to fluctuations in the economy, it takes a while for changes in the money supply to actually influence prices and unemployment. By the time the policy has an effect on the economy, there may be no more need for it to have occurred.