The Time Inconsistency of Monetary Policy Means That

question 18

Multiple Choice

The time inconsistency of monetary policy means that

• A)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)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)monetary policy is not consistent across time because it is influenced by politics.
• D)monetary policy is not consistent across time because policymakers are incompetent.

---

Definitions:

Labor Costs

The total sum of all wages paid to employees, as well as the costs of employee benefits and payroll taxes incurred by an employer.

Pay Range

A set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade.

Minimum Pay

The lowest legal salary that an employer can pay to an employee.

Maximum Pay

The highest salary or wage rate that an employee can earn in a specific job or position.