Question

what are the merits of a discretionary monetary policy?

Answer 1

Discretionary monetary is also known as Dynamic monetary policy where the Federal Reserve can change monetary policy quickly in relation to changes in economic conditions of the country.

Merits:

1. Policymakers can respond quickly to changes in economic factors and keep the economic conditions of the country according to the current economic situation.

2. Under a strict rule policy, it is not possible to change monetary policy in certain unforeseen circumstances. The discretionary policy helps the country to be ready for any unforeseen circumstances.

3. The controlling of inflation rates and interest rates can be done continuously to safeguard the inflation levels and to prevent an economic crisis in the country under any given situations.

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