The time-inconsistency problem with monetary policy tells us that,if policymakers use discretionary policy,there is a higher probability that the ________ will be higher,compared to policy makers following a behavior rule.
A)inflation rate
B)unemployment rate
C)interest rate
D)foreign exchange rate

Question

Quizplus · Accepted Answer

The time-inconsistency problem with monetary policy refers to the tendency of policymakers to deviate from their stated policies, making it difficult for the public to trust their announcements. This leads to a higher probability of inflation, as policymakers may be tempted to pursue short-term goals at the expense of long-term stability. Following a behavior rule, such as a fixed rule for adjusting interest rates based on economic indicators, can help to mitigate this problem and create more stable outcomes.

The Time-Inconsistency Problem with Monetary Policy Tells Us That,if Policymakers