If a Government Managed to Reduce the Time Inconsistency Problem

question 17

Multiple Choice

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

• A)the long-run Phillips curve would shift right.
• B)the long-run Phillips curve would shift left.
• C)the short-run Phillips curve would shift up.
• D)the short-run Phillips curve would shift down.

---

Definitions:

Revenues

The total income generated by a business or an economy from its operational activities, such as the sale of goods or services before any expenses are deducted.

Costs

Costs refer to the expenses incurred in the production of goods or services, including materials, labor, and overhead.

Marginal Product

The growth in productivity that occurs when an extra unit of input is added, with all other inputs remaining the same.

Profit

The financial benefit realized when revenue generated from business activities exceeds the expenses, costs, and taxes needed to sustain the operation.