What is meant by the time inconsistency of economic policy? Why might policymakers be tempted to renege on an announcement they made earlier? In this situation, what is the advantage of a policy rule?

Time inconsistency of economic Policy reflects policies that were regarded as optimal yesterday may not be ideal in the present time; hence they may not be executed. Policymakers are not always driven with the desire to help the typical countryman; therefore, they will sway policies to fit their interests. Consequently, if the policy made is not achievable, the obligation of changing or reshaping them lies in the hands of the policymakers. Policy rule provides a setting to accommodate other changing variables during decision makings, such as inflation.

Time inconsistency policy is problematic because it distorts decisions of individuals, which leads to inefficiency. In contrast, a policy rule is free of time inconsistency because policy makers do not have as much discretion, and their actions must abide by the pre-determined set of rules.