To solve the "time inconsistency" problem in macro policy, a nation may well have to:
A) present policy moves to the public, for example, in a referendum.
B) use the courts to settle policy disputes.
C) restrict itself in the present from taking certain policy moves in the future.
D) lift all restrictions on future policy moves.
E) make the central bank more responsive to the popular will.

Question

Quizplus · Accepted Answer

Time inconsistency refers to the potential inconsistency between current policy decisions and future policy decisions. One way to solve this problem is to restrict the government from taking certain policy moves in the future. This could be achieved through the use of binding commitments, such as legislation or rules that limit future policy choices. This would help to ensure that the government is held accountable for following through on its promises and that it cannot change its policies for short-term political gain. It is important to note that presenting policy moves to the public or making the central bank more responsive to the popular will may not necessarily solve the time inconsistency problem.

To Solve the "Time Inconsistency" Problem in Macro Policy, a Nation