To Solve the "Time Inconsistency" Problem in Macro Policy, a Nation

question 39

Multiple Choice

To solve the "time inconsistency" problem in macro policy, a nation may well have to:

• A) present policy moves to the public, for example, in a referendum.
• B) use the courts to settle policy disputes.
• C) restrict itself in the present from taking certain policy moves in the future.
• D) lift all restrictions on future policy moves.
• E) make the central bank more responsive to the popular will.

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Definitions:

Ordinary Annuity

A succession of equivalent remittances occurring at regular intervals for a certain stretch of time.

Deferred Annuity

An insurance product that provides future payments to the holder, usually after retirement, where payments are delayed for a certain period.

Ordinary Annuity

A financial product resulting in a stream of payments to the holder at regular intervals over a specified period of time, typically at the end of each period.

Deferred Annuity

An insurance product that delays income payments until the investor elects to receive them, typically at retirement.