Assignment:
What is Economics?
There are two types of policies namely rule-based and discretionary, which are used by central government for adjusting inflation, employment and output. In rule-based, polices are established by the central government systematically as per the formula. This policy is more effective to ensure the achievement of credible results as it is quite transparent in nature, which is effective to make instant changes in the economic variables as per the requirements. On the other hand, policies, which are not designed on the basis of rules, can be defined as discretionary policies. Discretionary is more variable than rule-based policy in responding quickly at the time of worst economic conditions (Croushore, 2012). But at the same time, the effect of such policies cannot be anticipated due to their diplomatic nature, which may make the conditions more complex for analyzing and handling.