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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Definitions:

Factor of Production

Refers to the resources used in the creation of goods and services, which typically include land, labor, capital, and entrepreneurship.

Inelastic Demand

A market condition where the demand for a good or service is relatively unresponsive to changes in its price.

Substitute Resources

Alternative resources that can be used in place of another to satisfy consumer demand or production needs, often affecting market competition and prices.

Elastic Demand

A market situation where the quantity demanded of a good or service changes significantly as its price changes.