Rule versus discretion
This question addresses the issue of whether monetary policy should be made by discretionary policy or be implemented according to a set of rules.
Which of the following statements reflect arguments against policy by rule? Check all that apply.
- The Federal Reserve may use monetary policy to affect the outcome of elections.
- Monetary rules reduce the flexibility of the Federal Reserve.
- It is impossible for a policy rule to consider all the possible scenarios and specify, in advance, the right policy response. It is better to appoint qualified individuals who will respond to any situation as best they can.
- Monetary rules may lead to a lower sacrifice ratio because the public is more confident that the Federal Reserve will keep inflation low.