Question

What are the main criteria for choosing a policy instrument? Why? Explain.

Short answer

Observability and measurability

Controllability
Predictable effects on goal

Step-by-step solution

Concept Introduction

Policy instruments are techniques used by central banks or governments to promote a policy. For instance, in a fiscal policy, government spending and taxation are policy instruments.

Explanation

Observability and measurability

By implementing a policy whose effects can be observed easily and measured accurately, the impacts of the policy can be tracked and changed if needed.
Controllability
If a policy has too little or too hard of an effect, it can be adjusted in scale to properly reach an outcome.
Predictable effects on goal
By having policies with straightforward outcomes it'll be easier to measure, control, and predict how to apply, how intensely, and for how long.