Monetary Policy in Highland

question 250

Multiple Choice

Monetary Policy in Highland
Highland has had inflation of 15% for many years. Highland establishes a new central bank, the Bank of Highland, with the hopes of reducing the inflation rate.
-Refer to Monetary Policy in Highland. The Bank of Highland publicizes that it intends to reduce the inflation rate to 5%. If it actually reduces inflation to 3% and people were expecting inflation to fall only to 8%, then

• A)unemployment falls but it would have fallen by more if the Bank of highland had reduced inflation to 5% rather than 3%.
• B)unemployment falls but it would have fallen by less if the Bank of highland had reduced inflation to 5% rather than 3%.
• C)unemployment rises but it would have risen by more if the Bank of highland had reduced inflation to 5% rather than 3%.
• D)unemployment rises but it would have risen by less if the Bank of highland had reduced inflation to 5% rather than 3%.

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