Question

Which of the following statements is likely to be made by an economist who believes in activist monetary policy? (1) The more closely monetary policy can be designed to meet the particulars of a given economic environment, the better. (2) Because of long and uncertain time lags, activist monetary policy may be destabilizing rather than stabilizing. (3) There is sufficient flexibility in wages and prices in modern economies to allow the

Answer 1

Answer:

(1) The more closely monetary policy can be designed to meet the particulars of a given economic environment, the better.

Explanation:

Monetary Policy is the instrument by which the Central Bank conducts the economy. The debate over monetary policy is basically divided into two groups. Monetarists who believe that monetary policy should be used only to maintain price stability - contain inflation. On the other hand, monetary policy activists argue that, in addition to containing inflation, monetary policy is a powerful instrument that can be used to influence the economy in other sectors, for example in stimulating job creation. This would make monetary policy an instrument designed to address particularities of the economic system.