Compare Two Procedures for Conducting Monetary Policy

question 63

Essay

Compare two procedures for conducting monetary policy:
Method 1: Maintain a steady money growth of 6 percent per year
Method 2: Maintain a steady inflation rate of 3 percent per year
Be sure to consider whether the methods involve (1) active or passive monetary policy and (2) rules or discretion. Discuss why one method might be preferred over the other.

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Definitions:

Method of Concomitant Variations

A scientific method where one observes the changes in one variable alongside the changes in another, determining correlation.

Sunlight

The light and energy that comes from the sun, providing warmth and facilitating photosynthesis in plants.

Method of Concomitant Variations

A research method where one observes the effects of the deliberate variation of one factor on a phenomenon to identify causation.

Necessary Condition

A necessary condition is a condition that must be present for an event or state of affairs to occur; without it, the event or state cannot exist.