Which of the following is the most powerful argument for putting restraints on policy makers (as opposed to self-restraint by policy makers themselves)?
A)time inconsistency
B)uncertainty about Okun's coefficient
C)uncertainty about the natural rate of unemployment
D)uncertainty about the timing of policy impacts
E) disagreements about the proper structure of an econometric model

Question

Quizplus · Accepted Answer

Time inconsistency refers to the idea that policy makers may have short-term incentives to pursue policies that are not optimal in the long run. This can lead to a need for external restraints on their behavior, such as rules-based policies or independent central banks, to ensure that they act in the best interests of the economy as a whole. The other choices listed may also create challenges for policy making, but are not as directly related to the need for external restraints.

Which of the Following Is the Most Powerful Argument for Putting