Asked by Redwanul Haque on May 28, 2024
Verified
If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.
Fed
Refers to the Federal Reserve, the central banking system of the United States, responsible for monetary policy.
Monetary Policy
Actions by a central bank to influence the economy by adjusting interest rates and the amount of money in circulation.
Time Inconsistency Problem
A situation where a decision-maker's preferences change over time, leading to a conflict between past and present desires.
- Comprehend the discussion surrounding the application of monetary policy frameworks as opposed to the use of discretionary measures.
Verified Answer
KJ
Krishna JayaswalJun 01, 2024
Final Answer :
True
Explanation :
Following a rule for monetary policy helps eliminate the time inconsistency problem by committing the Federal Reserve to a consistent policy over time, reducing the temptation to deviate for short-term benefits that could lead to long-term issues like inflation.
Learning Objectives
- Comprehend the discussion surrounding the application of monetary policy frameworks as opposed to the use of discretionary measures.