The importance of the nominal anchor Concept Introduction: Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

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Answer 1

Question

Chapter 19, Problem 1LO

To determine

The importance of the nominal anchor

Concept Introduction:

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

Expert Solution & Answer

Explanation of Solution

A nominal anchor is a single variable or a device that is used by the Central Bank to influence the economy’s expectation of the nominal price level or about the course of action that can be undertaken by the Central Bank, and is generally used to ensure price stability. The importance of nominal anchor is that it helps to curb the time-inconsistency problem because it makes it clear that the central bank must focus on the long-run and not pursue short-run expansionary policies that are inconsistent with the nominal anchor. Commitment to a nominal anchor can also encourage the government to be more fiscally responsible, which also supports price stability.

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Answer 2

Question

Chapter 19, Problem 1LO

To determine

The importance of the nominal anchor

Concept Introduction:

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

Expert Solution & Answer

Explanation of Solution

A nominal anchor is a single variable or a device that is used by the Central Bank to influence the economy’s expectation of the nominal price level or about the course of action that can be undertaken by the Central Bank, and is generally used to ensure price stability. The importance of nominal anchor is that it helps to curb the time-inconsistency problem because it makes it clear that the central bank must focus on the long-run and not pursue short-run expansionary policies that are inconsistent with the nominal anchor. Commitment to a nominal anchor can also encourage the government to be more fiscally responsible, which also supports price stability.

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Answer 3

Question

Chapter 19, Problem 1LO

To determine

The importance of the nominal anchor

Concept Introduction:

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

Expert Solution & Answer

Explanation of Solution

A nominal anchor is a single variable or a device that is used by the Central Bank to influence the economy’s expectation of the nominal price level or about the course of action that can be undertaken by the Central Bank, and is generally used to ensure price stability. The importance of nominal anchor is that it helps to curb the time-inconsistency problem because it makes it clear that the central bank must focus on the long-run and not pursue short-run expansionary policies that are inconsistent with the nominal anchor. Commitment to a nominal anchor can also encourage the government to be more fiscally responsible, which also supports price stability.

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Answer 4

Question

Chapter 19, Problem 1LO

To determine

The importance of the nominal anchor

Concept Introduction:

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

Expert Solution & Answer

Explanation of Solution

A nominal anchor is a single variable or a device that is used by the Central Bank to influence the economy’s expectation of the nominal price level or about the course of action that can be undertaken by the Central Bank, and is generally used to ensure price stability. The importance of nominal anchor is that it helps to curb the time-inconsistency problem because it makes it clear that the central bank must focus on the long-run and not pursue short-run expansionary policies that are inconsistent with the nominal anchor. Commitment to a nominal anchor can also encourage the government to be more fiscally responsible, which also supports price stability.

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Answer 5

Chapter 19, Problem 1LO

To determine

The importance of the nominal anchor

Concept Introduction:

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

Expert Solution & Answer

Explanation of Solution

A nominal anchor is a single variable or a device that is used by the Central Bank to influence the economy’s expectation of the nominal price level or about the course of action that can be undertaken by the Central Bank, and is generally used to ensure price stability. The importance of nominal anchor is that it helps to curb the time-inconsistency problem because it makes it clear that the central bank must focus on the long-run and not pursue short-run expansionary policies that are inconsistent with the nominal anchor. Commitment to a nominal anchor can also encourage the government to be more fiscally responsible, which also supports price stability.

Answer 6

Chapter 19, Problem 1LO

To determine

The importance of the nominal anchor

Concept Introduction:

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

Expert Solution & Answer

Explanation of Solution

A nominal anchor is a single variable or a device that is used by the Central Bank to influence the economy’s expectation of the nominal price level or about the course of action that can be undertaken by the Central Bank, and is generally used to ensure price stability. The importance of nominal anchor is that it helps to curb the time-inconsistency problem because it makes it clear that the central bank must focus on the long-run and not pursue short-run expansionary policies that are inconsistent with the nominal anchor. Commitment to a nominal anchor can also encourage the government to be more fiscally responsible, which also supports price stability.

Answer 7

Chapter 19, Problem 1LO

To determine

The importance of the nominal anchor

Concept Introduction:

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.

Answer 8

Expert Solution & Answer

Explanation of Solution

A nominal anchor is a single variable or a device that is used by the Central Bank to influence the economy’s expectation of the nominal price level or about the course of action that can be undertaken by the Central Bank, and is generally used to ensure price stability. The importance of nominal anchor is that it helps to curb the time-inconsistency problem because it makes it clear that the central bank must focus on the long-run and not pursue short-run expansionary policies that are inconsistent with the nominal anchor. Commitment to a nominal anchor can also encourage the government to be more fiscally responsible, which also supports price stability.