To Deal with the Time Inconsistency Problem Associated with Monetary

question 45

Multiple Choice

To deal with the time inconsistency problem associated with monetary policy, some have suggested that:

• A) the central bank implement expansionary monetary policy prior to election years.
• B) the contract of the central bank governor be reviewed regularly by the parliament.
• C) elected officials should have a direct influence on the implementation of monetary policy.
• D) the head of the central bank be chosen by election.
• E) the central bank be made more independent.

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Definitions:

Misunderstanding

A failure to understand something correctly, which can lead to conflicts or voidable agreements in legal contexts.

Unconscionable

Actions or terms in a contract that are so unjust or overwhelmingly one-sided that they shock the conscience or are deemed unfair by law.

Subject to the Equities

A legal principle that means a transaction or property is dependent on or subject to any existing equities or claims against it.

Punitive Damages

Monetary compensation awarded to a plaintiff, over and above actual damages, intended to punish the defendant for particularly harmful behavior.