chp24

Question 1

rule

Answer 1

what to do based on principle rather than circumstances

Question 2

discretion

Answer 2

policy is adapted to circumstances rather than principle

Question 3

monetarists

Answer 3

Milton Friedman worshippers

Question 4

constant-money-growth-rate rule

Answer 4

money supply must continue to grow at a constant rate (say 3% per year) regardless of economic conditions

Question 5

Taylor “rule”

Answer 5

specification of how the Federal Reserve sets the federal funds rate relative to the output gap and inflation gap

Question 6

advantages of rules

Answer 6

consistent
can achieve long-term goals
limit pressure from political systems

Question 7

disadvantages of rules

Answer 7

can’t achieve short-term goals based on current circumstances

Question 8

constrained discretion

Answer 8

the fusion of both rules and discretion together such that the Federal Reserve may operate on principle but has some flexibility in adapting policy to circumstances

Question 9

who was constrained discretion introduced by

Answer 9

Mishkin and Bernanke

Question 10

credibility

Answer 10

perception of a policy that is accepted or believed by the general public