Which of the Following Best Defines Time Inconsistency

question 19

Multiple Choice

Which of the following best defines time inconsistency?

• A) The increasing inaccuracy of econometric models as the time horizon becomes longer.
• B) The effect of economic uncertainty on short- run stabilisation policy.
• C) The tendency for the rise in output to be greater in the early years of a president's term, and smaller in the later years.
• D) The tendency for policy makers to deviate from a pre- announced optimal policy once agents in the economy have adjusted their behaviour and expectations based on the pre- announced policy.
• E) The effects of political electoral cycles on the business cycle.

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Definitions:

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