This question addresses the issue of whether monetary policy should be made by d

Question

This question addresses the issue of whether monetary policy should be made by discretionary policy or be implemented according to a set of rules. Which of the following statements reflect arguments in favor of policy by rule rather than discretion? 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. The time inconsistency of policy problem can be eliminated by having the central bank commit to a particular policy rule. Monetary rules reduce the flexibility of the Federal Reserve. Monetary rules may lead to a lower sacrifice ratio because the public is more confident that the Federal Reserve will keep inflation low.

Explanation / Answer

Statement 2 and statement 4 are in the favor of policy by rule rather than discretion.

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