What is the main difference between an instrument rule and a targeting rule? Be sure to define each
What will be an ideal response?
An instrument rule sets the policy instrument using a formula based on the current state of the economy. A targeting rule sets the policy instrument at a level that makes the central bank's forecast of the ultimate policy goals equal to their targets. The main difference between the two is that the targeting rule is based on a forecast of the economy while the instrument rule is based on the state of the economy.
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If the MPS is 0.1 and the income tax rate is 0.33, and the fraction of income spent on imports is 0.25, then the multiplier is
A) 2.5. B) 1.47. C) 1.51. D) 1.55.
The purchase of foreign currency by a central bank will tend to cause ________
A) an appreciation of the domestic currency B) a depreciation of the domestic currency C) an increase in the value of foreign exchange, but no change in the value of the domestic currency D) a decrease in the value of foreign exchange, but no change in the value of the domestic currency
When there is an excess quantity of a product supplied, there will be
A) a tendency for price of the product to increase. B) a tendency for price of the product to fall. C) incentives for consumers to leave the market. D) upward pressure on the price of labor.
Under EPA regulations, a factory
a. must pay for the right to pollute. b. can increase air pollution from its grinding process if it decreases air pollution from its smelting process. c. cannot under any circumstances build a polluting factory in an area where pollution standards are not being met by existing firms. d. None of the above is correct.