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a. Define “time inconsistency” of economic policy

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 5RQ: Does neoclassical economics focus on the long term or the short term? Explain your answer.

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Question

a. Define “time inconsistency” of economic policy?

b. i) Examine why policy makers might be tempted to renege on an announcement they made
earlier?

ii) In this situation, what is the advantage of a policy
rule?

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