A. Forward commitment encourages lending because banks do not fear that the Fed will
suddenly reverse the policy.
B. Forward commitment encourages excessive lending as banks try to take control of as
many reserves as possible before the policy is exhausted.
C. Forward commitment eliminates all flexibility in monetary policy.
D. Forward commitment creates moral hazard in lending, as banks know that the Fed will
continue to pump reserves into the system.
ANSWER
A. Forward commitment encourages lending because banks do not fear that the Fed will
suddenly reverse the policy.