The Existence of the Time Inconsistency Problem in Macro Policy

question 4

Multiple Choice

The existence of the time inconsistency problem in macro policy suggests which of the following?

• A) Use fiscal and monetary policy to fine tune the economy.
• B) Appoint someone who is more conservative than the rest of the government to head the central bank.
• C) Intervene frequently in the foreign exchange market.
• D) Reduce the independence of the central bank.
• E) Eliminate rational expectations from econometric models used for forecasting.

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