Which of the Following Explains the Time-Inconsistency of Policy Explained

question 126

Multiple Choice

Which of the following explains the time-inconsistency of policy explained by Kydland and Prescott?

• A) A contractionary monetary policy will lead to higher unemployment in the short-run but not the long-run.
• B) An expansionary monetary policy will lead to higher unemployment in the short-run but not the long-run.
• C) Expected inflation is higher than otherwise if the public believes that policymakers will be tempted to raise inflation to reduce unemployment.
• D) Expected inflation is lower than otherwise if the public believes that policymakers will be tempted to lower inflation to reduce unemployment.

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Definitions:

Dividend Payments

Distribution of a portion of a company's earnings to its shareholders, usually in cash or additional stock.

Dividend Yield Ratio

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Earnings Per Share

A company's profit divided by its number of common shares outstanding, indicating how much money it makes per share.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price, often expressed as a percentage.