If the Fed has the discretion to choose its policy and announces a low inflation policy,then
A)the public is likely to discount this claim because the Fed has an incentive to change their policy in the future.
B)the public is likely to believe this claim because the Fed has no incentive to change their policy in the future.
C)the Fed will always cheat and increase inflation in the future.
D)the Fed will have to keep inflation lower in the future or they will be voted out of office.
E)none of the above.

Question

Quizplus · Accepted Answer

The public is likely to discount the Fed's claim of a low inflation policy because the Fed has the discretion to change its policy in the future based on economic conditions or political pressure. The Fed's credibility is important in this scenario, but its history of changing its policies over time makes it difficult for the public to fully trust its statements.

If the Fed Has the Discretion to Choose Its Policy