Suppose that in 2004 the Fed announced a policy of rapid growth in the money supply,but then put the brakes on money expansion without any announcement.If in 2005,Fed officials announce again that an expansion is planned,the most likely result is that
A)people will believe the announcement since the conditions that created a need for the expansion are probably still in effect
B)people will believe the announcement since they will believe that having failed to implement the expansion previously,the Fed still plans to do so
C)people will not believe the announcement since they will believe that the conditions that created a need for the expansion must have changed in the meantime
D)people will not believe the announcement since they will believe that having failed to implement the expansion previously,the Fed will probably fail again
E)there will be more uncertainty about the Fed following through on the policies it announces

Question

Quizplus · Accepted Answer

The Fed's previous failure to follow through on its announced policy creates uncertainty about its commitment to future announcements, leading people to doubt the credibility of the new expansion plan.

Suppose That in 2004 the Fed Announced a Policy of Rapid