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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Definitions:

Wavelength

Wavelength refers to the distance between successive crests of a wave, especially in physics, where it determines the properties of waves of light and sound.

Perception

The process by which sensory information is organized, interpreted, and consciously experienced.

Hue

A property of color determined by its dominant wavelength, perceived as one of the basic aspects of color such as red, green, or blue.

Iris

The colored part of the eye that controls the size of the pupil and the amount of light that enters the eye.