1. The most common definition that monetary policymakers use for price stability is A) low and stable deflation. B) an inflation rate of zero percent. C) high and stable inflation. D) low and stable inflation. 2. Inflation results in A) ease of planning for the future. B) ease of comparing prices overtime. C) lower nominal interest rates. D) difficulty interpreting relative price movements. 3. Economists believe that countries recently suffering hyperinflation have experienced A) reduced growth. B) increased growth. C) reduced prices. D) lower interest rates. 4. Monetary policy is considered time-inconsistent because A) of the lag times associated with the implementation of monetary policy and its effect on the economy. B) policymakers are tempted to pursue discretionary policy that is more contractionary in the short run. C) policymakers are tempted to pursue discretionary policy that is more expansionary in the short run. D) of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy. 5. The time-inconsistency problem in monetary policy can occur when the central bank conducts policy A) using a nominal anchor. B) using a strict and inflexible rule. C) on a discretionary, day-by-day basis. D) using a flexible, discretionary rule. 6. A nominal anchor promotes price stability by A) outlawing inflation. B) stabilizing interest rates. C) keeping inflation expectations low. D) keeping economic growth low. 7. Having interest rate stability A) allows for less uncertainty about future planning. B) leads to demands to curtail the Fed's power. C) guarantees full employment. D) leads to problems in financial markets.