Edward Prescott and Finn Kydland Won the Nobel Prize in Economics

Multiple Choice

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) inflation targeting.
B) the monetary policy reaction lag.
C) the time inconsistency of policy.
D) the sacrifice ratio dilemma.