_____,the time-inconsistency problem gets 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 which are well publicized
D)When expectations about the 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 arises when discretionary macro policy is used, as policymakers may change their initial policy stance due to short-term political considerations. By replacing discretionary policy with fixed and well-publicized policy rules, the time-inconsistency problem is eliminated.

_____,The Time-Inconsistency Problem Gets Eliminated