If the Bank of Canada Has Discretion to Choose Its

Multiple Choice

If the Bank of Canada has discretion to choose its own policy and announces a policy of low inflation, then:

A) the policymaker is required to make the money supply grow at a low rate.
B) private economic agents are sure to believe the announcement because it is credible.
C) private economic actors are likely to discount the policy because the Bank of Canada has an incentive to renege on its policy once expectations are formed.
D) the Bank of Canada is certain to renege on its policy once expectations are formed because then it can lower unemployment with minimum inflation.