List of Advantages of Monetary Policy 1. A central bank, while needing to be open to evidence of structural economic change, also needs to be cautious. The absence of a monetary aggregate anchor, however, has not left policy completely adrift. Influencing the political business cycle O a Flexibility to deal with changing economic conditions licy? The Fed uses monetary policy to boost employment and income levels -- but in a way that doesn't cause a general rise in the prices of goods and services. Monetary policy that effectively manages the money supply helps ensure that prices for goods and services accurately reflect changes in supply or demand for those goods and services. A satisfactory recovery from the recession of that period, in our judgment, required the active participation of a viable banking system. Federal Reserve: How Does Monetary Policy Influence Inflation and Employment? Discretionary monetary policy refers to the Fed's ability to react dynamically to economic conditions and make quick decisions, as opposed to only using the tools at its disposal when prearranged thresholds are reached. Influencing the political business cycleb. But we have found that very often historical regularities have been disrupted by unanticipated change, especially in technologies.
Nonetheless, all of us could easily add to the list.
Get the latest in research, commentary, and more from Mercatus scholars. C O N : M O N E TA R Y P O L I C Y S H O U L D N O T B E M A D E B Y R U L E Although there may be pitfalls with discretionary monetary policy, there is also an important advantage … B. Specifically, the persistence of rising profit margins in the face of stable or falling inflation raises the question of what is happening to productivity. Accordingly we are constantly evaluating how much we can infer from the past and how relationships might have changed. Policy rules, at least in a general way, presume some understanding of how economic forces work. Indeed, how will we measure inflation in the future when our data--using current techniques--could become increasingly less adequate to trace price trends over time? A higher reserve means banks can lend less. | Although our operating target is a nominal short-term rate, we view its linkages to spending and prices as indirect and complex. Central banks are bureaucracies, and bureaucracies are not adept at processing new information and making changes to policies in response. Which of the following is an important advantage of discretionary monetary policy? This supports higher employment levels by creating opportunities to meet the greater demand for goods and services. We knew we would soon have to sop up the excess liquidity that we added to the system, but the timing and, I believe, the magnitude of our actions were among our easier decisions. A. The term 'discretionary monetary policy' refers to actions undertaken by the Federal Reserve in order to minimize inflation, maximize employment, ensure stable economic growth, and promote American economic interests abroad. I have concentrated on how we have tried to identify and analyze new developments, and endeavored to use that analysis to fashion and balance policy responses. A key point of debate is whether requiring the Fed to follow a specific rule would be preferable to the Fed’s current broad discretion. Inflation impairs economic efficiency in part because people have difficulty separating movements in relative prices from movements in the general price level.
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