Arguments for discretionary policies include
A)policy rules can be too rigid because they cannot foresee every contingency.
B)the time-inconsistency problem can lead to poor economic outcomes.
C)discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.
D)all of the above.

Question

Quizplus · Accepted Answer

Policy rules can indeed be too rigid because they cannot foresee every contingency. Discretionary policies can, therefore, be necessary for policymakers to respond to unexpected economic events. Option B is incorrect because the time-inconsistency problem refers to the potential that policymakers may renege on pre-agreed policies for political gain. Option C is incorrect because discretionary policies are often criticized for being too expansionary in the short run, not the other way around.

Arguments for Discretionary Policies Include