The Time-Inconsistency Problem in Discretionary Policymaking About Unemployment and Inflation

question 11

Multiple Choice

The time-inconsistency problem in discretionary policymaking about unemployment and inflation can be effectively avoided when the:

• A) policymaker has and is known to have an extremely strong preference for very low inflation.
• B) policymaker does not care about the rate of inflation and simply sets policy to avoid unemployment.
• C) private agents in the economy are not "rational."
• D) policymaker has more information than do the private agents in the economy.