If monetary authorities follow a monetary rule, then monetary policy is more effective in affecting real variables like real GDP.

Question

Quizplus · Accepted Answer

Following a monetary rule often implies adhering to a predetermined path for monetary policy (like targeting a specific inflation rate or money supply growth rate), which can make policy more predictable but does not inherently increase its effectiveness in affecting real variables like real GDP in the short term, as these are influenced by a variety of factors beyond monetary policy alone.

If Monetary Authorities Follow a Monetary Rule, Then Monetary Policy