To solve the "time inconsistency" problem in macro policy,a nation may well have to
A)restrict itself in the present from taking certain policy moves in the future.
B)lift all restrictions on future policy moves.
C)present policy moves to the public, for example, in a referendum.
D)use the courts to settle policy disputes.
E) make the central bank more responsive to the popular will.

Question

Quizplus · Accepted Answer

The time inconsistency problem is the tendency for policymakers to change their stated objectives over time, leading to inconsistent policy actions. To address this problem, a nation may need to restrict itself in the present from taking certain policy moves in the future. For example, a government can create binding rules or commitments that limit future policy options, ensuring that policymakers follow through with their original plans. This can help build credibility and trust in the policymaking process, leading to more effective macroeconomic policies.

To Solve the "Time Inconsistency" Problem in Macro Policy,a Nation