_____, the time-inconsistency problem gets eliminated.
a. When an inflation or a recession is correctly anticipated
b. When lags associated with monetary and fiscal policy are extremely short
c. When discretionary macro policy is replaced with fixed policy rules which are well publicized
d. When expectations about the economy adjust very slowly
e. When the price level in an economy adjusts over time with changes in aggregate demand
Question 2
If an economy is at potential GDP and an expansionary policy is correctly anticipated, the result will be:
a. a short-run fall in output and employment.
b. little or no increase in GDP.
c. an increase in wages along with a dramatic fall in the price level.
d. a rapidly expanding economy.
e. a severe recession.
Time
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How to solve an exponential decay problem involving first order decay
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