Monetary Policy Is Considered Time-Inconsistent Because

question 21

Multiple Choice

Monetary policy is considered time-inconsistent because

• A)of the lag times associated with the implementation of monetary policy and its effect on the economy.
• B)policymakers are tempted to pursue discretionary policy that is more contractionary in the short run.
• C)policymakers are tempted to pursue discretionary policy that is more expansionary in the short run.
• D)of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy.

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Definitions:

Variable Cost

Costs that move in correspondence with the quantity of products made or services sold.

Fixed Costs

Expenses that do not vary with production volume or business activity level, such as rent, salaries, and insurance premiums.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the extent to which a firm uses fixed versus variable costs.

Variable Cost

Costs that change in proportion to the level of output or activity in a business.