The concept of 'Time Inconsistency' in monetary policy was highlighted by:
A. Friedman and Schwartz
B. Modigliani and Miller
C. Keynes and Hicks
D. Kydland and Prescott
Answer: Option D
Solution (By JKSSB Mock Tests)
Kydland and Prescott demonstrated that discretionary policy can be suboptimal because policymakers have an incentive to renege on previously announced optimal plans once private agents have formed expectations.
Explanation:
Import substitution industrialisation seeks to reduce dependence on imports by protecting and promoting domestic industries through tariffs, quotas and other measures.
Explanation:
Crowding out is more pronounced when the economy is close to full employment, as higher government borrowing raises interest rates and reduces private investment.
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