_____, the time-inconsistency problem is eliminated.
A) When an inflation or a recession is correctly anticipated
B) When lags associated with monetary and fiscal policy are extremely short
C) When discretionary macro policy is replaced with fixed policy rules that are well publicized
D) When expectations about an economy adjust very slowly
E) When the price level in an economy adjusts over time with changes in aggregate demand

Question

Quizplus · Accepted Answer

The time-inconsistency problem refers to the potential for policymakers to not follow through on their promised policies once they are in place. This can lead to instability and uncertainty in the economy. However, if discretionary macro policy is replaced with fixed policy rules that are well publicized, then this problem is eliminated as the policies are predetermined and will not be subject to changing preferences or political pressures.

_____, the Time-Inconsistency Problem Is Eliminated