The Concept of Dynamic Inconsistency Implies That a Central Bank

question 15

Multiple Choice

The concept of dynamic inconsistency implies that a central bank

• A)will always do the wrong thing if it is concerned with long-run outcomes rather than current disturbances
• B)should never announce its intentions because doing so renders discretionary monetary policy useless
• C)should resist making policy changes that may endanger its stated long-run goals even though these changes could successfully address a short-run problem
• D)should always be inconsistent in its behavior so people will be less likely to profit from anticipating its policy actions
• E)none of the above

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