ABSTRACT
It remains to consider how promptly and how greatly changes in the rates of interest as set by the monetary authorities can affect the three macro-economic targets of money income, the balance of payments, and the investment ratio. Changes in interest rates can be made very promptly and very frequently by the monetary authorities, who have merely to change the prices at which they will deal in the various government securities or to announce a change in the rates at which they will lend or borrow. Thus what we have called the adjustment lag is very short for monetary controls. But the effect lags, i.e. the speeds at which a change in interest rates will affect the various targets, vary very considerably between one target and another. We will accordingly consider the probable effects on each of the three targets of a reduction of the money rate of interest and so, at any given level of expected price inflation, of the real rate of interest.
