Question

rguments for adopting a policy rule include A. discretion avoids the straitjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect. B. discretion enables policy makers to change policy settings when an economy undergoes structural changes. C. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run. D. all of the above.

Answer 1

Answer:

C. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.

Explanation:

Arguments for adopting a policy rule include;

- discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.

- discretion enables policymakers to change policy settings when an economy undergoes structural changes.

- discretion avoids the straightjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect.

- policy rules can be too rigid because they cannot foresee every contingency.

- policy rules do not easily incorporate the use of judgment.