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Arguments for adopting a policy rule include ____.
A) the time-inconsistency problem can lead to poor economic outcomes
B) discretionary policies pursue overly expansionary monetary policies to boost employment in
the short run but generate higher inflation in the long run
C) policy makers and politicians cannot be trusted
D) all of the above
Answer: D
Diff: 2 Type: MC Page Ref: 623
Skill: Recall
Objective List: 26.2 Characterize the discretionary versus nondiscretionary and rules versus
discretion policy debates
Arguments for adopting a policy rule include ____.
A) 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
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: C
Diff: 2 Type: MC Page Ref: 623
Skill: Recall
Objective List: 26.2 Characterize the discretionary versus nondiscretionary and rules versus
discretion policy debates
Arguments for discretionary policies include
A) policy rules can be too rigid because they cannot foresee every contingency
B) the time-inconsistency problem can lead to poor economic outcomes
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: A
Diff: 2 Type: MC Page Ref: 623 - 624
Skill: Recall
Objective List: 26.2 Characterize the discretionary versus nondiscretionary and rules versus
discretion policy debates