Question

Following the recession of 2008-2009, the Bank of Canada embraced a policy of forward guidance.
I. This policy was adopted because the short-term interest rate had fallen to almost zero.
II. This policy can be of limited usefulness since households and firms understand that the time-inconsistency problem applies.

	Both I and II are true.
	Neither I nor II is true.
	I is true; II is not.
	II is true; I is not.

Answer 1

As we know that the great recession of 2008-2009 is linked to the "subprime mortgage crisis.” It happened in the US and many parts of the Europe.Subprime mortgages are home loans granted to borrowers with poor credit histories. Their home loans are considered high-risk loans.

During the recession the short term interest rates had almost fallen to zero which forced canada to take the policy of forward guidance.

The correct option is (a).

Both 1 and 2 are true.

Hope you got the answer.

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