Why Should Monetary Policy Be Made by Rule Rather Than

question 9

Multiple Choice

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

• A)because the economy is subject to a variety of random shocks
• B)because monetary policymakers are now allowed undisciplined discretion
• C)because it is not clear how important political business cycles have been in the past
• D)because central banks can achieve credibility over time by backing up their words with deeds

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Definitions:

Expected Activity

The anticipated level of operations or production activity, often used in the budgeting process or for setting performance standards.

Activity-Based Costing

A pricing approach that allocates overheads and indirect expenses to corresponding products and services according to the activities they necessitate.

Activity Rate

A metric used to allocate costs to cost objects based on the activities that drive costs, often used in activity-based costing.

Estimated Costs

Projected or forecasted costs associated with manufacturing, projects, or operations, used for budgeting and planning purposes.