Classify each of the following monetary policy approaches as active or passive and as discretionary or rule-bound.
Question:
Classify each of the following monetary policy approaches as active or passive and as discretionary or rule-bound.
1. "Lean against the wind"
A. Active; rule-bound
B. Passive; discretionary
C. Passive; rule-bound
D. Active; discretionary
2. Money Growth = 1% + (Unemployment Rate - 2%)
A. Active; rule-bound
B. Passive; discretionary
C. Passive; rule-bound
D. Active; discretionary
3. A legally fixed money growth rate of 2% per year
A. Active; rule-bound
B. Passive; discretionary
C. Passive; rule-bound
D. Active; discretionary
4. Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap)
A. Active; rule-bound
B. Passive; discretionary
C. Passive; rule-bound
D. Active; discretionary
5. Which of the four rules you considered above is subject to the time inconsistency problem?
A. Money Growth = 1% + (Unemployment Rate - 2%)
B. A legally fixed money growth rate of 2% per year
C. "Lean against the wind"
D. Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap
The Economics of Money Banking and Financial Markets
ISBN: 978-0133836790
11th edition
Authors: Frederic S. Mishkin