Describe why monetary policy rules are superior to discretionary monetary policy
What will be an ideal response?
Rules are superior to discretion because rules allow people in the economy greater insight into how the Fed will respond to events and allow people to be aware of how the Fed's policy is likely to change the inflation rate. The economy functions better if the expected inflation rate equals, or is close to, the actual inflation rate and rules make this outcome more likely than would pure discretionary policy.
You might also like to view...
Which of the following statements is NOT consistent with new growth theorists' beliefs?
A) Innovation can lead to lower productivity costs. B) Inventions are much more important than innovation. C) Technology must be understood in terms of what drives it. D) Rewards lead to technological advances.
A study of expenditures on food in cities resulting in the following equation: Log E = 0.693 Log Y + 0.224 Log N where E is Food Expenditures; Y is total expenditures on goods and services; and N is the size of the family. This evidence implies:
a. that as total expenditures on goods and services rises, food expenditures falls. b. that a one-percent increase in family size increases food expenditures .693%. c. that a one-percent increase in family size increases food expenditures .224%. d. that a one-percent increase in total expenditures increases food expenditures 1%. e. that as family size increases, food expenditures go down.
If a bank gets a $100,000 new deposit, chooses to lend out $75,000, and increases its excess reserves by $5,000 at the same time, then the reserve requirement is: a. 30%
b. 25%. c. 20%. d. unable to be determined from the information given.
The real wealth effect explains that higher prices
a. make people worse off by reducing the value of their wealth, leading them to save more and spend less b. make people worse off by reducing the value of their wealth, leading them to save less and spend more c. make people better off by increasing the value of their wealth, leading them to save less and spend more d. increase borrowing, leading to higher interest rates and less investment e. make domestic goods relatively more expensive, increasing the demand for domestic goods and decreasing the demand for foreign goods