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:

Communication

The process of exchanging information, ideas, feelings, and messages between individuals or groups.

Rewards

Benefits, compensations, or recognitions provided to individuals or groups in response to their achievements or desired behaviors.

Internal Conflict

A struggle within a person caused by opposing desires, beliefs, or needs, or such conflicts within groups or organizations.

Overwhelmed

A state of feeling unable to cope due to being overloaded with various demands or pressures.