ECON 3350 Exam III - Page 5 of 5 12/7/2021 (c) (15 points) Assume the public have rational expectations. According to the model, which policy is better: A monetary authority bound by rules or discretion? Explain. One or two sentences will suffice. Hints: 1. Refer to your answers in part e of Question 1 on this exam. 2. Compare those answers to the equilibrium inflation and output rates from parts a and b on this question. 3. Make note of which situation has higher inflation. 4. Consider only what the model is telling you, not what you think would actually happen in real life. If the model doesn't say it, then it isn't a good idea to say it either. (d) (10 points) Based on Milton Friedman's presidential address at the AEA, which policy do you think he would agree with; rules or discretion