Chapter26: Monetary Policy
Section: Chapter Questions
Problem 5SQP
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This question below addresses whether monetary policy should be discretionary or be implemented following a set of rules.
Which of the following statements argues against discretionary monetary policy? Check all that apply.
-It is impossible for a policy rule to consider all the possible scenarios and specify, in advance, the right policy response. It is better to appoint qualified individuals who will respond to any situation as best they can.
-Discretionary monetary policy may lead to a higher sacrifice ratio because the public is not confident that the Federal Reserve will keep inflation low.
-Monetary rules reduce the flexibility of the Federal Reserve.
-The Federal Reserve may use monetary policy to affect the outcome of elections.
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