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:

Capital Budgeting

The process businesses use to evaluate potential major projects or investments.

Positive/Negative Analysis

An evaluative process that assesses the positive and negative outcomes or impacts of a decision or situation.

Risk Analysis

The process of identifying, assessing, and prioritizing risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events.

Capital Budgeting

The process by which businesses evaluate and prioritize investments in projects and acquisitions to maximize their long-term value.