When monetary policymakers are unable to solve the time consistency problem, the primary result is
A) low growth.
B) high unemployment.
C) high inflation.
D) none of the above.

Question

Quizplus · Accepted Answer

The time consistency problem in monetary policy refers to the difficulty in making credible commitments to low inflation policies in the future. When policymakers cannot solve this problem, they may be tempted to pursue unexpectedly high inflation to temporarily boost employment or growth. However, if such policies are anticipated, they can lead to higher inflation without the intended benefits, making high inflation the primary result.

When Monetary Policymakers Are Unable to Solve the Time Consistency