Question

Suppose that you run the central bank of Fredonia. If you were concerned that monetary surprises may destabilize the economy, you would use monetary policy. If you believed that unexpected monetary policy could stimulate the economy, you would use monetary policy.

Answer 1

Answer:

Suppose that you run the central bank of Fredonia. If you were concerned that monetary surprises may destabilize the economy, you would use Active/Passive monetary policy. If you believed that unexpected monetary policy could stimulate the economy, you would use Active/Passive monetary policy.

Explanation:

An active monetary policy regularly considers the current economic situation and comes up with policies to regulate it. Many countries use an active monetary policy.  

In the US, the Federal Reserve’s Federal Open Market Committee, the group of people in charge of deciding these policies, meet 8 times a year to decide on policies that stabilize the economy.  

By contrast, Passive monetary policy uses a standard set of rules to regulate the economy. These rules do not change in response to a change in the economy. For example there may be a rule for a 2% increase in interest rates for every 2% increase in Aggregate Output.