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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Definitions:

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Generational Differences

Refers to the variations in attitudes, values, and behaviors between individuals of different age groups, often identified by their generation, such as Baby Boomers, Gen X, Millennials, and Gen Z.

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