What Does the Time Inconsistency of Monetary Policy Mean

question 104

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, policymakers are tempted to raise inflation in order to lower unemployment and gain favour with voters.
• B) It means that sometimes 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:

Checking Accounts

Banking accounts that allow depositors to write checks and use electronic debit to access funds for transactions and withdrawals.

Traveler's Checks

A type of check especially designed for travelers to use as a form of payment, which offers the security against loss or theft by requiring signatures for cashing.

Coins

Pieces of metal that are officially minted and used as money in financial transactions.

Public

The general populace or the community at large, often used in the context of government, policy, or matters of state.