Some People Believe That Monetary Policy Should Be Made by Rule

question 33

Multiple Choice

Some people believe that monetary policy should be made by rule rather than by discretion.One of their beliefs is that

• A)setting a policy rule will limit the abuse of power of policymakers.
• B)policymakers can better influence the political business cycle in their favor when following a policy rule.
• C)a policy rule provides policymakers with the greatest flexibility to manage inflation.
• D)if the Fed was required to follow a low-inflation policy,the economy would face a less favorable short-run trade-off between inflation and unemployment.

Comprehension of the conditions under which firms will enter or exit the market based on profit and cost analysis.

Understanding the equalization of marginal revenue and marginal cost as a profit-maximization condition.

Recognizing the impact of market competition on a firm’s pricing and output decisions.

Ability to calculate and interpret marginal cost and its relevance to production decisions.

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Definitions:

External Cost

A cost borne by individuals or society that is not reflected in the market price of a good or service, often associated with negative externalities.

Socially Optimal

A condition or point at which the welfare of a society reaches its highest possible level, considering all factors and resources.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of that good that suppliers are willing and able to provide.