If a central bank employs policies that seem appropriate for the short run but may endanger its long-run goals, then
A)its actions involve dynamic inconsistency
B)it should never announce its intentions, because financial markets have a tendency to respond slowly to new information
C)it should not announce which indicators it is using to assess the success of the policy action
D)people cannot profit from anticipating the central bank's policy actions
E)none of the above

Question

Quizplus · Accepted Answer

Employing policies that may endanger long-run goals but seem appropriate for the short run involves dynamic inconsistency, where the central bank's actions are inconsistent over time.

If a Central Bank Employs Policies That Seem Appropriate for the Short