What Does the Time Inconsistency of Monetary Policy Mean

question 112

Multiple Choice

What does the time inconsistency of monetary policy mean?

• A)It means that 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)It means that 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)It means that monetary policy is not consistent across time because it is influenced by politics.
• D)It means that monetary policy cannot be consistent across time because the rate of inflation is fluctuating.

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