Question
When setting monetary policy, the Federal Reserve Board can use one of two general methods. The first method is to use a rule that sets
When setting monetary policy, the Federal Reserve Board can use one of two general methods. The first method is to use a rule that sets the federal funds interest rates at a specific level based on current economic conditions. The second method is for the Fed to use its discretion on the setting of the federal funds interest rate based upon expected future economic conditions. Currently, the Fed uses a discretionary policy. Periodically Congress debates whether or not to require the Fed to use a policy rule in setting the federal funds interest rate. Would you support an interest rate rule or allow the Fed to continue using its current method? Justify your response.
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