A central bank operating with discretion can achieve the same outcome as the central bank committed to a fixed rule of zero inflation if:
A) there are no inside lags.
B) there are no outside lags.
C) the central bank dislikes unemployment much more than inflation.
D) the central bank dislikes inflation much more than unemployment.

Question

Quizplus · Accepted Answer

A central bank that dislikes inflation much more than unemployment is more likely to prioritize maintaining low inflation rates, even when operating with discretion. This prioritization aligns with the outcome of a fixed rule aiming for zero inflation, as the central bank would consistently work to minimize inflation regardless of other economic conditions.

A Central Bank Operating with Discretion Can Achieve the Same