The Time-Inconsistency Problem Is Likely to Arise in Cadmia If

question 132

Multiple Choice

The time-inconsistency problem is likely to arise in Cadmia if _____.

• A)attempts are made to coordinate monetary policy with fiscal policy
• B)there is a lag between the announcement of a monetary policy and its implementation
• C)policy makers initially aim to keep the price level stable but do not follow through as promised
• D)policy makers do not allow enough time for a new policy to take effect
• E)there is a deep conflict among monetary policy makers

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Definitions:

Long-Run Phillips Curve

A concept suggesting that in the long term, there is no trade-off between inflation and unemployment, as opposed to the short-run Phillips curve.

Disinflation

A reduction in the rate of inflation, characterized by a slowing down in the rate at which prices increase over time.

Short-Run Phillips Curve

A graphical representation that shows an inverse relationship between the rate of inflation and the unemployment rate in the short-term.

World Commodity Prices

The prices of goods such as oil, gold, coffee, etc., that are traded internationally and can fluctuate due to supply and demand dynamics.