There Is Often Pressure on Central Banks to Raise Output

question 29

Essay

There is often pressure on central banks to raise output and reduce unemployment in the short run. Explain how this creates a time consistency problem.

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Definitions:

Rational

Pertains to decision-making processes that are based on logical reasoning and systematic analysis of alternatives.

Charismatic

Describes a person or quality that is compellingly attractive and inspiring due to an exceptional ability to influence and arouse enthusiasm.

Heuristic Device

An approach or method used to discover and learn something for oneself, often implemented in problem-solving and scientific research.

Conceptual Construct

A theoretical framework or idea that is built through the integration of various concepts to understand or explain phenomena.