Time inconsistency arises when the government
A)does not explicitly state its long-term goals.
B)does not know how to achieve its long-term goals.
C)is willing to deviate from its long-term goals for the sake of short-run gain.
D)often changes its long-term goals.
E)adheres to its long-term goals.

Question

Quizplus · Accepted Answer

Time inconsistency occurs when the government deviates from its long-term goals for short-run gain, which is a result of prioritizing present gains over future losses. This behavior is typically seen in the context of monetary or fiscal policy, where decision-makers may prefer to reduce unemployment or increase spending in the short-term, even if it means higher inflation or debt in the future. In other words, time inconsistency arises when the government's actions do not align with its stated long-term goals.

Time Inconsistency Arises When the Government