A time-inconsistency problem in macroeconomic policy can occur when the policymaker:
A) is made to follow a strict and an inflexible rule.
B) has discretion in the short run but follows a rule in the long run.
C) has discretion to act as it seems best in each situation, based on his or her own knowledge and experience.
D) has no discretion.

Question

Quizplus · Accepted Answer

Time-inconsistency arises when policymakers have the discretion to change policies based on short-term considerations, which may lead to outcomes that are not optimal in the long run.

A Time-Inconsistency Problem in Macroeconomic Policy Can Occur When the Policymaker