The Time-Inconsistency Problem in Discretionary Policymaking About Unemployment and Inflation

question 11

Multiple Choice

The time-inconsistency problem in discretionary policymaking about unemployment and inflation can be effectively avoided when the:

• A) policymaker has and is known to have an extremely strong preference for very low inflation.
• B) policymaker does not care about the rate of inflation and simply sets policy to avoid unemployment.
• C) private agents in the economy are not "rational."
• D) policymaker has more information than do the private agents in the economy.

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Definitions:

Self-Sufficiency

The ability of an individual or economy to provide for all their needs without external assistance.

Infant Industry Protection

Economic policies designed to protect young or emerging domestic industries from foreign competition.

Price and Profit Maintenance

Practices aimed at keeping prices at a certain level to ensure sustainable profits, often through agreements or monitoring.

Quota

A government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a specified period.