A Central Bank Operating with Discretion Can Achieve the Same

question 25

Multiple Choice

A central bank operating with discretion can achieve the same outcome as the central bank committed to a fixed rule of zero inflation if:

• A) there are no inside lags.
• B) there are no outside lags.
• C) the central bank dislikes unemployment much more than inflation.
• D) the central bank dislikes inflation much more than unemployment.

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Definitions:

Complete Rationality

The assumption that we take into account every single criterion or possible alternative to make a decision.

Bounded Rationality

The idea that we are restricted by a variety of constraints when making decisions.

Bounded Rationality

A concept that decision-makers are limited by the information they have, their cognitive limitations, and the finite amount of time they have to make a decision.

Essential Rationality

The inherent human capacity to think logically and make decisions based on reason and critical thinking.