1)What is meant by the 'time inconsistency' of economic policy?

2)Mercantilism recommends that a country should limit its exports, so that more of the otherwise-exportable products are instead available for local consumption.

True

False

Explain.

1)Time inconsistency arises when an optimal decision made is likely to change with time and is no longer considered optimal. A government uses time inconsistency to convince people of low economic times, then implement a policy that assures the affected people of the same.

Time inconsistency indicates the lack of solid plans made by the government towards economic situations in a country. An example, the government convinces the citizens that increasing taxes would improve the financial conditions but goes ahead and changes the economic policy after increasing the tax rates.

People in power use time inconsistency as a cover for misusing public funds. It is used to protect powerful officials from facing consequences that arise from the implementation of bad economic policies.

2)The correct answer FALSE

Mercantilism is an economic policy in a form of trade protectionism that limits its imports and maximizing its exports that will create more wealth on the nation's domestic economy and companies that are exporting goods out of the country. It is also a policy created to aim or achieve a current account surplus, or a nation is a net creditor to other countries.