Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed ...
... would be tempted to raise output by increasing inflation. This possibility is known as __________.
A. the monetary policy reaction lag
B. the sacrifice ratio dilemma
C. the time inconsistency of policy
D. inflation targeting
The answer is C. the time inconsistency of policy
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