What types of rules for monetary policy may be sensible for policymakers to consider? What is the advantage of using rules over discretion? What problems might there be with rules?
What will be an ideal response?
One possible rule is a constant money growth rule, as proposed by Milton Friedman and the monetarists. It has the advantage of being based on economic theory and using observable data. Following such a rule might be preferable to discretion, because people would understand the Fed's rule and form expectations accordingly, which would in turn reduce the costs of disinflation. The problem with such a rule could come if there were structural changes in the economy, such as a change in money demand. In such a case, the rule's lack of flexibility could cause the Fed to follow inappropriate policies.
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If a higher price for wheat decreases the quantity of corn being produced, which of the following describes what has occurred?
A) The supply of wheat increased and the supply of corn decreased. B) The quantity of wheat supplied increased and quantity of corn supplied decreased. C) The supply of wheat increased and the quantity of corn supplied decreased D) The quantity of wheat supplied increased and the supply of corn decreased. E) The supply of wheat decreased and the supply of corn decreased.
The movement of households from rural to urban settings reduced the degree of specialization in household production
a. True b. False