Which of the following gives the Fed a credibility problem because the Fed may change its planned policies in light of new economic developments?
A)Adaptive expectations
B)Time inconsistency
C)Wage expectations
D)Disinflation
E)Rational expectations

Question

Quizplus · Accepted Answer

Time inconsistency refers to the Fed's tendency to change its planned policies in response to new economic developments, which can lead to a credibility problem if the public doubts the Fed's ability to stick to its announced plans. The other options are not directly related to credibility problems.

Which of the Following Gives the Fed a Credibility Problem