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:

1942-1946

A period during World War II noted for significant global conflicts, political changes, and the beginning of the post-war recovery phase.

WAVES

A division of the U.S. Navy during World War II, consisting of women volunteers who served in non-combat roles.

Noncommissioned Officers

Military personnel who have earned a position of authority by promotion through the ranks rather than by commission; they serve as essential links between the enlisted personnel and the commissioned officers.

Second World War

A global conflict that lasted from 1939 to 1945, involving most of the world's nations, including all of the great powers, eventually forming two opposing military alliances: the Allies and the Axis.