Policymakers will find it easier to achieve their goals by sticking to policy rules rather than discretion if they face the problem of:
A) very short policy lags.
B) adaptive expectations.
C) time inconsistency.
D) discretionary fiscal policy.
E) a weak central bank.

Question

Quizplus · Accepted Answer

Time inconsistency refers to the problem that arises when a policymaker promises to pursue a certain course of action, but then changes course when circumstances change. This can lead to a lack of credibility and undermine the effectiveness of policy. By sticking to policy rules, policymakers can help to overcome this problem and build credibility with markets and the public.

Policymakers Will Find It Easier to Achieve Their Goals by Sticking