Wednesday, November 30, 2005

On the Margin

I recently had an opportunity to hear some college students present an economic analysis and monetary policy recommendation. I was reminded of something that often escapes our students.

One of the characteristics of monetary policy is the long lag time between change and full impact. This is because each change does not affect all players in the economy equally. Each change has a more significant impact on those economic players at the margin--at the point where the additional rise or fall in rates results in a
deal-breaker/deal-maker scenario. That relatively small number of transactions then ripples through the entire economy in the form of changed orders and decreased or increased consumption and production.

Many students don't get this.

Your comments are welcome.

Posted by TSchilling at 8:30 PM | Comments (0)

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