Classify each of the following monetary policy approaches as active or passive and as discretionary or rule-bound.

1. "Lean against the wind"

A. Active; rule-bound

B. Passive; discretionary

C. Passive; rule-bound

D. Active; discretionary

2. Money Growth = 1% + (Unemployment Rate - 2%)

A. Active; rule-bound

B. Passive; discretionary

C. Passive; rule-bound

D. Active; discretionary

3. A legally fixed money growth rate of 2% per year

A. Active; rule-bound

B. Passive; discretionary

C. Passive; rule-bound

D. Active; discretionary

4. Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap)

A. Active; rule-bound

B. Passive; discretionary

C. Passive; rule-bound

D. Active; discretionary

5. Which of the four rules you considered above is subject to the time inconsistency problem?

A. Money Growth = 1% + (Unemployment Rate - 2%)

B. A legally fixed money growth rate of 2% per year

C. "Lean against the wind"

D. Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap