Which of the Following Best Defines Time Inconsistency

question 43

Multiple Choice

Which of the following best defines time inconsistency?

• A)the increasing inaccuracy of econometric models as the time horizon becomes longer
• B)the tendency for the rise in output to be greater in the early years of a president's term, and smaller in the later years
• C)the effects of political electoral cycles on the business cycle
• D)the tendency for policy makers to deviate from a pre-announced optimal policy once agents in the economy have adjusted their behavior and expectations based on the pre-announced policy
• E) the effect of economic uncertainty on short-run stabilization policy

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Definitions:

Accrual Basis Accounting

An accounting method where revenues and expenses are recorded when earned or incurred, regardless of when the cash transactions occur.

Statement of Retained Earnings

A financial statement that shows the changes in a company's retained earnings over a specific period.

Net Income

The remaining profit of a company post deduction of all expenses, taxes, and costs from its total revenues.

Unearned Revenues

Income received by a company for goods or services to be provided in the future, which is recorded as a liability until earned.