If it is clear that an economic disturbance is only transitory, a central bank's best policy response may be to
A)react moderately or not at all because a major policy change may itself be destabilizing
B)recommend fiscal policy changes, which will have less powerful effects than monetary policy changes
C)act quickly and vigorously so financial markets do not overreact
D)announce a policy change and then wait to see the reaction of financial markets before deciding whether or not to actually implement it
E)avoid a potential increase in inflation by asking banks to ration credit

Question

Quizplus · Accepted Answer

If the disturbance is only transitory, then reacting with a major policy change may destabilize the economy even further. Therefore, the best policy response may be to react moderately or not at all, allowing the economy to recover on its own.

If It Is Clear That an Economic Disturbance Is Only