Conducting monetary policy so that the FF rate = 0.05, where the FF rate is the nominal federal funds interest rate, is an example of :
A) an active policy rule.
B) a passive policy rule.
C) discretionary policy.
D) an automatic stabilizer.

Question

Quizplus · Accepted Answer

Setting a specific FF rate as a target without considering current economic conditions is an example of a passive policy rule. It is not an active policy rule because it does not take into account changes in the economy or financial markets. It is not discretionary policy because the decision is predetermined based on the chosen rate. It is not an automatic stabilizer because it requires deliberate action by the Federal Reserve.

Conducting Monetary Policy So That the FF Rate = 0