What Will Time Inconsistency Cause

question 124

Multiple Choice

What will time inconsistency cause?

• A) It will cause the short-run Phillips curve to be higher than it otherwise would.
• B) It will cause the short-run Phillips curve to be lower than it otherwise would.
• C) It will cause the long-run Phillips curve to be farther to the right than it otherwise would.
• D) It will cause the long-run Phillips curve to be farther to the left than it otherwise would.

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Definitions:

Discount

The reduction from the full amount or value of something, especially the price of a financial instrument or merchandise.

Coupon Rate

The annual interest rate paid by a bond as a percentage of the face value, indicating the income investors can expect to receive.

Interest Rates

The percentage of a sum of money charged for its use, often expressed as an annual percentage.

Premium

The amount paid for an insurance policy or an extra charge for an enhanced or optional service over and above the basic.