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:

Opportunity Costs

The cost of foregone alternatives when a decision is made to pursue a particular course of action over others.

Production Possibilities Frontier

A curve depicting the maximum output combinations of two goods that can be produced given available resources and technology.

Opportunity Cost

The cost of what is foregone in order to pursue a certain action or decision.

Bowed-out

A term often used to describe a production possibility frontier that is concave from the origin, indicating increasing opportunity costs as more of one good is produced.