A Time-Inconsistency Problem in Macroeconomic Policy Can Occur When the Policymaker

question 18

Multiple Choice

A time-inconsistency problem in macroeconomic policy can occur when the policymaker:

• A) is made to follow a strict and an inflexible rule.
• B) has discretion in the short run but follows a rule in the long run.
• C) has discretion to act as it seems best in each situation, based on his or her own knowledge and experience.
• D) has no discretion.

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Definitions:

Money

A medium of exchange that facilitates the sale, purchase, or trade of goods and services.

Organizational-Level

Pertains to the overarching structures, processes, and practices that define and guide an entire organization.

Performance-Based Rewards

Incentives and benefits given to employees based on the quality and quantity of their work performance.

Share Options

A benefit given by a company, allowing employees to purchase company shares at a set price in the future.