3. Rule versus discretion

This question below addresses whether monetary policy should be discretionary or be implemented following a set of rules.

Which of the following statements argues against a rule-based policy?Check all that apply.

1. Monetary rules reduce the flexibility of the Federal Reserve.

2. The Federal Reserve may use monetary policy to affect the outcome of elections.

3. Monetary rules may lead to a lower sacrifice ratio because the public is more confident that the Federal Reserve will keep inflation low.

4. 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.