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explain the time inconsistency problem what is the likely outcome of discretionary p 639596

The Price Stability Goal and The Nominal Anchor

1) The time inconsistency problem in monetary policy can occur when the central bank conducts policy

A) using a nominal anchor.

B) using a strict and inflexible rule.

C) on a discretionary, day by day basis.

D) using a flexible, discretionary rule.

2) Explain the time inconsistency problem. What is the likely outcome of discretionary policy? What are the solutions to the time inconsistency problem?

Other Goals of Monetary Policy

3) Even if the Fed could completely control the money supply, monetary policy would have critics because

A) the Fed is asked to achieve many goals, some of which are incompatible with others.

B) the Fed”s goals do not include high employment, making labor unions a critic of the Fed.

C) the Fed”s primary goal is exchange rate stability, causing it to ignore domestic economic conditions.

D) it is required to keep Treasury security prices high.

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