Application of the Time Inconsistency Problem to Monetary Policy Suggests

question 1

Multiple Choice

Application of the time inconsistency problem to monetary policy suggests that,without some mechanism to ensure commitment,the

• A) rate of inflation will be higher than it would be with commitment.
• B) level of real output will be lower than it would be with commitment.
• C) rate of inflation will be higher and the level of real output will be lower than it would be with commitment.
• D) rate of inflation and the level of real output will be higher than it would be with commitment.
• E) the rate of inflation will be higher and the level of real output would be indeterminant than it would be with commitment.

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