Conducting Monetary Policy So That the Overnight Rate = π

question 4

Multiple Choice

Conducting monetary policy so that the overnight rate = π + 0.5(π - 2) + 0.5 (GDP gap) , where the overnight rate is the nominal overnight interest rate, π is the annual inflation rate, and GDP gap is the percentage shortfall of real GDP from its natural level, is an example of:

• A)an active policy rule.
• B)a passive policy rule.
• C)discretionary policy.
• D)an automatic stabilizer.

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Definitions:

Moral Hazard Problem

A situation in economics where one party is more likely to take risks because the negative consequences of the risk will be felt by another party, often seen in insurance and finance sectors.

Health Care Market

The aggregate of all businesses and organizations involved in the provision and funding of health care services, including hospitals, insurance companies, and pharmaceutical companies.

Underallocated Resources

Refers to a situation where resources are not being used to their full potential within an economy, often resulting in inefficiencies and lost output.

Health Care Industry

Comprises sectors that provide goods and services to treat patients with curative, preventive, rehabilitative, and palliative care.