In addition, changes in corporate profits and income levels will only bring about a gradual change in the confidence of firms and households in their investment and consumption, and after some delay in time, new decisions will be made on investment and consumption. Further time is then needed before these decisions materialize as actual spending.
It has been said that pre-emptive policy responses are necessary to ensure price stability. This is because, as mentioned earlier, price stability must be achieved in the medium to long term, and because there will always be a considerable time lag before policy effects permeate throughout the economy.