Why Should Monetary Policy Be Made by Rule Rather Than

question 75

Multiple Choice

Why should monetary policy be made by rule rather than discretion?

• A) There is a clear consensus among economists about what a good monetary policy rule would be.
• B) Rules would eliminate the political business cycle.
• C) Rules respond to any random shock in the economy.
• D) Rules create time inconsistency.

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Definitions:

Safe Payments

Transactions that are protected against fraud, theft, or any other types of financial risks, ensuring the security of the payment process.

Liquidation Expenses

Costs associated with winding up a company's affairs and distributing its assets to claimants.

Capital Account Balances

The net result of public and private international investments flowing in and out of a country, showing changes in national ownership of assets.

Noncash Assets

Assets that cannot be quickly converted to cash, including property, plant, and equipment, and often valued at cost or depreciated cost on the balance sheet.