The Time Inconsistency of Monetary Policy Means That

question 18

Multiple Choice

The time inconsistency of monetary policy means that

• A)once people have formed expectations of low inflation based on a promise by the central bank,the central bank is tempted to raise inflation to lower unemployment.
• B)at some times central banks think it is more important to keep unemployment low;at other times,they think it is more important to keep inflation low.
• C)monetary policy is not consistent across time because it is influenced by politics.
• D)monetary policy is not consistent across time because policymakers are incompetent.

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