When a central bank reacts the same way to a shock every time,it is likely using:
A) policy discretion.
B) a policy rule.
C) a bandwagon policy.
D) a wait-and-see policy.

Question

Quizplus · Accepted Answer

If a central bank reacts the same way every time to a shock, it is likely using a policy rule. A policy rule is a predetermined strategy that a central bank follows to achieve its monetary policy objectives, such as controlling inflation. It provides clear guidance to market participants on how the central bank will react to different economic conditions and shocks. It contrasts with policy discretion, where the central bank has more freedom in choosing its policy actions based on its interpretation of the economic situation.

When a Central Bank Reacts the Same Way to a Shock