If policymakers announce in advance how policy will respond to various situations and commit themselves to following through on this announcement, this is:
A) policy by rule.
B) policy by discretion.
C) time inconsistent policy.
D) monetary policy.

Question

Quizplus · Accepted Answer

Policy by rule refers to announcing policy rules and committing to following through on them. This provides clear and predictable guidance for economic agents and can lead to greater stability in the economy. In contrast, policy by discretion allows policymakers to make decisions on a case-by-case basis, which can lead to less predictability and potentially less effective outcomes. Time inconsistent policy refers to situations where policymakers change their policy stance over time, which can also lead to uncertainty and instability in the economy. Monetary policy is a specific type of policy that focuses on managing the money supply and interest rates to achieve macroeconomic goals. While policy by rule can be applied in different policy areas, it is particularly relevant to monetary policy.

If Policymakers Announce in Advance How Policy Will Respond to Various