Monetary policy rules assume that central banks can calculate and set the _______ at the level necessary achieve inflation targets at potential output. This assumption ______ the complexities and ______ the precision of monetary policy making in the real world.

Question

Quizplus · Accepted Answer

Monetary policy rules, such as the Taylor rule, often assume central banks adjust the real interest rate to stabilize the economy and control inflation. This simplification understates the complexities involved in economic forecasting and decision-making, and overstates the precision with which central banks can influence economic outcomes.

Monetary Policy Rules Assume That Central Banks Can Calculate and Set