If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then
A)the long-run Phillips curve would shift right.
B)the long-run Phillips curve would shift left.
C)the short-run Phillips curve would shift up.
D)the short-run Phillips curve would shift down.

Question

Quizplus · Accepted Answer

Mandating a low inflation target reduces inflation expectations, which can shift the short-run Phillips curve down as firms and workers adjust their expectations accordingly.

If a Government Managed to Reduce the Time Inconsistency Problem