Which of the following would eliminate the time inconsistency problem?
A)Each of the following would eliminate the time inconsistency problem.
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)None of the above.

Question

Quizplus · Accepted Answer

Fixed policy rules that are well publicized eliminate the discretion of policymakers, and therefore, eliminate the time inconsistency problem. The other options do not necessarily eliminate the problem.

Which of the Following Would Eliminate the Time Inconsistency Problem