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