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.

---

Definitions:

Price Increase

An adjustment in the selling price of goods or services, typically due to higher costs or improved market conditions.

Net Operating Income

The profit generated from a company's regular business operations, excluding expenses such as interest and taxes.

Traceable Fixed Expense

A fixed expense that can be directly associated with a specific business segment or area, making it easier to allocate costs accurately.

Net Operating Income

The profit generated from a company's operational activities, excluding expenses and revenues that are not related to the core business operations.