Which of the following correctly describes the time-inconsistency problem?
a. The problem that arises when policy makers have an incentive to announce one policy to influence expectations, but then pursue different policy once those expectations have been formed and acted on.
b. The problem that arises when the president and Congress have an incentive to pursue policies that are different from those of the Fed.
c. The problem that arises when consumer preferences change frequently over time such that a product considered highly desirable at one point would be considered undesirable after sometime.
d. The problem that arises when firms increase supply of a product in anticipation of future increase in demand for the product, but suffers a heavy loss because of a steep fall in demand.
a
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As real rates of interest increase in the economy, real investment spending increases
Indicate whether the statement is true or false
Refer to the figure above. If tastes were to change so that S became more preferred relative to T, then, in autarky, production and consumption would move from their initial equilibrium to a point such as
A) C. B) D. C) E. D) F.
During times of economic boom, the spending on unemployment insurance:
A. likely falls, since more people are working. B. likely goes up, since wages typically rise during booms. C. likely stays the same, as government spending is through set criteria and unaffected by the business cycle. D. is usually based on discretionary fiscal policy.
Historically, the largest budget deficits and growing government debt occur during war years
a. True b. False Indicate whether the statement is true or false