Question

Please classify the individuals according to whether they would or would not be in favor of using rules to regulate monetary policy.

Policy should be made by rule Policy should not be made by rule Answer Bank Ellen believes monetary policy should remain flexible in order to be able to respond to various economic challenges Hector believes that the current system allows too much room for policy makers to promise changes but resist having to act. Dean believes that the worries about time inconsistency are largely hypothetical and should not be too concerning Steve is concerned that members of the Open Market Committee are free to time their decisions to help their favored candidates Natasha is concerned that policy makcrs can abuse their power for political gains.

Answer 1

Policy should be made by Rule	Policy should not be made by Rule
Hector is in favour of a policy by rule as he thinks that the current system allows policy makers to make false promises.	Ellen thinks that policy should not be made by rule as she believes that monetary policy should remain flexible.
Natasha is in favour of a policy by rule as then it will not allow policy makers to misuse their power.	Dean believes that time inconsistency problem, which occurs when monetary policy is not made by rule, is largely hypothetical and not too concerning. So he is in favor of not using rules to regulate monetary policy.
Steve believes that open market operations are often misused to favour a particular group, and hence a policy by rule would solve that problem.