Non Activist Monetary/Fiscal Policy

Which of the following is the most accurate example of a non-activist ====Monetary Policy target?===============Fiscal Policy rule?=========== A)====Price Index======================Legal limit on budget deficits== B)====Price Index======================Annual Growth rate for budget surplus C)===Interest Rates=====================Legal limit on budget deficits== D)===Interest Rates=====================Annual Growth rate for budget surplus

just a wild guess - C?


im guessing b aswell… not sure what non-activist means… where did you get these q’s from? but in australia, our policies are run just like that… MP targets inflation… FP is pretty much, the surplus is set as a percentage of GDP

I say A half guessing i dont get it with the surplus growth rate, rather I’d go for a limit on the deficit

what’s the answer, delhi?

I like A too but it seems to me that I can make activist and non-activist statements about all of those.

I don’t particularly like this question. Anything that has a target implies an active regime to try to hit that target. If I had to choose though I’d say I can less actively hit an interest rate, than I can target an inflation rate.

Correct answer is A For non-activists, the shortcomings of using money supply figures, as an indicator of monetary policy enhance the attractiveness of price index as policy targets. a non-activist fiscal policy would consider limits on both government spending and budget deficits necessary for stability.

as stated in the book non activists are those that believe in rational expectations their monetary policy is based on 1. maintainting a stable money supply growth - not budget surplus 2.managing money supply with a focus on mantaining stable prices

thx…Florinpop, if you don’t mind, could you point me to the relevant section (pg #, if possible) in the book that covers this topic (schweser or CFAI text). I need to brush up on this, I am drawing a blank on this topic.

ss4 page 59 schweser but i have a 2006 edition

Thanks for the response florinpop… That makes me wonder, if this section was removed from '07. The above que is from CFAI’06 sample exam. I can’t find any mention of this in '07.

delhi, I don’t think it’s in the curriculum this year. I just checked and couldn’t find anything related to this.

Thanks Lola…makes me feel much better about my econ prep now…most of the questions that I got wrong for econ in my last test were from omitted sections.

which makes me worried because i’ve been studying from old books . well we’ll see

florinpop, you don’t want to study eco in particular from old books.

I know I’ll have a chance to take a look at the cfa books for a few days see what’s different

I guess for everything else, you would be ok, for Eco, I suggest you compare the '06 LOS with the current LOS.

thanks delhirocks