Monetary policy affects the economy with a long lag, in part because a. changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance. b. proposals to change monetary policy must go through both the House and Senate before being sent to the president.

Monetary policy can be defined as the actions (macroeconomic policies) adopted and undertaken by the central bank of a particular country to control the money supply and interest rates so as to boost or enhance economic growth. The central bank uses monetary policies to manage inflation, economic growth through long-term interest rates and level of unemployment in a country. In order to boost economic growth, monetary policy is used to increase money supply (liquidity) while it is also used to prevent inflation by reducing money supply.

Generally, money supply comprises of checks, cash, money market mutual funds (MMF) and credit (mortgage, bonds and loans).

Hence, monetary policy affects the economy with a long lag, in part because changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.