What incentives arise for a central bank to fall into the time-inconsistency trap of pursuing overly expansionary monetary policy?
Question
What incentives arise for a central bank to fall into the time-inconsistency trap of pursuing overly expansionary monetary policy?
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Solution 1
- Short-Term Economic Boost: Central banks may be tempted to pursue overly expansionary monetary policy to stimulate economic growth in the short term. By increasing the money supply, they can lower interest rates, which encourages borrowing and investment. This can lead to increased spending, high Knowee AI StudyGPT is a powerful AI-powered study tool designed to help you to solve study prob
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