There is a general agreement among economists that since the effect of monetary

Question

There is a general agreement among economists that since the effect of monetary policy on output and unemployment is negligible, policymakers may prefer to use only fiscal poky is extremely clear cut policymakers may prefer to use monetary policy rather than fiscal poky is uncertain, policymakers would be better off not using it altogether is uncertain policymaker s need to proceed with caution and use a less acme policy always set the inflation rate target to inflation do not have the authority to set the inflation rate target -only president and the Congress can set the target usually have a rather flexible inflation are ret became they may have the deviate form the inflation target depending on the state of the economy have no incentive to deviate from the target inflation rate after a target: announced

Explanation / Answer

Fiscal Vs Monetary policy

In comparison to fiscal policy, adjustment lags under monetary policy are generally shorter. Once the Fed identifies the nature of economic problem, it takes immediate action to implement changes in monetary policy. Fiscal policy lags are quite time consuming especially legislative and implementation lags. Monetary policy is more direct, accurate and does no crowd out. So it should be used more often.

Hence Option B is correct

Central banks

Inflation targeting: Under this rule, the Central bank would announce a target for the inflation rate and then it will adjust the money supply whenever the inflation rate deviates from its targeted level. If the Central Bank is willing to keep the money supply constant, there is nothing the Fed should do as an extra effort. It will always allow the interest rate to adjust itself.

Hence Option D is correct

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