A Problem with a Precommitment Policy Is That It

question 53

Multiple Choice

A problem with a precommitment policy is that it:

• A)determines the Fed's response for a period of time.
• B)binds the hands of the Fed from responding to unexpected events.
• C)will cause the Fed to lose credibility.
• D)locks the Fed into contractionary policy.

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Definitions:

Weakens

Becomes less strong or potent; in economic terms, can refer to a currency's decrease in value relative to others.

€

The symbol for the Euro, the official currency of the Eurozone in the European Union.

Appreciates

Denotes the appreciation in an asset's value as time progresses.

£

The symbol for the British Pound Sterling, the currency of the United Kingdom.