1a. Discuss the pros and cons of central banks setting policy based on rules as opposed to setting...

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1a. Discuss the pros and cons of central banks setting policy based on rules as opposed to setting policy based upon the discretion of policymakers at each policy meeting.(b) Review the money-growth rules discussed in Chapter 18 to determine which rule you believe is the most viable. Explain your rationale. 	Argue for or against using the Taylor Rule to guide economic policy. Provide specific examples to support your response. 	Determine the impact on the economy if the central bank in the U.S. used inflation targeting. Explain your rationale.  2a. Step into the shoes of a financial analyst. Discuss which steps of the capital budgeting process you would find the most challenging and state why.(b)Discuss the pros and cons of applying different investment decision rules when faced with the choice of investing corporate funds. Provide at least two examples. 	Analyze the guidelines for financing strategy to determine which element would be the most valuable to the greatest number of businesses. 	Describe a business with which you are familiar to determine the key steps that the business could take in order to reduce its cost of capital.  NOTE: ANSWER ALL IN 1.5PAGES
	
Document Preview: 1a. Discuss the pros and cons of central banks setting policy based on rules as opposed to setting policy based upon the discretion of policymakers at each policy meeting.(b) Review the money-growth rules discussed in Chapter 18 to determine which rule you believe is the most viable. Explain your rationale.Argue for or against using the Taylor Rule to guide economic policy. Provide specific examples to support your response.Determine the impact on the economy if the central bank in the U.S. used inflation targeting. Explain your rationale.2a. Step into the shoes of a financial analyst. Discuss which steps of the capital budgeting process you would find the most challenging and state why.(b)Discuss the pros and cons of applying different investment decision rules when faced with the choice of investing corporate funds. Provide at least two examples.Analyze the guidelines for financing strategy to determine which element would be the most valuable to the greatest number of businesses.Describe a business with which you are familiar to determine the key steps that the business could take in order to reduce its cost of capital.NOTE: ANSWER ALL IN 1.5PAGES

Robert · Accepted Answer

1. a. Discuss the pros and cons of central banks setting policy based on rules as opposed to setting policy 
based upon the discretion of policymakers at each policy meeting.
Answer:
Under discretionary monetary policy, the central bank is free to carry out an independent monetary policy according 
to the needs of the economy whereas a rule specifies an action that needs to be pursued independently of the states 
of the economy.
Rules are preferred over discretion because or pros of using rule to carry monetary policy; 
1. Potential GDP is not known with certainty and therefore we cannot determine whether real GDP is 
currently below or above the potential GDP. As a result, we often find uncertainty about the direction in 
which discretionary policy should move. 
2. Policy lags are often longer that forecast horizon. Therefore whether the discretionary policy would of 
desired effect is not known. 
3. Fixed rule policies are more predictable than discretion based policy and therefore it does not lead to 
unexpected fluctuation in aggregate demand.
Cons of using rules against discretion; 
1. Policies based on rules are note always appropriate because economic conditions are dynamic i.e.

1a. Discuss the pros and cons of central banks setting policy based on rules as opposed to setting policy based upon the discretion of policymakers at each policy meeting. (b) Review the money-growth...

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