Monetary Policy in Highland

question 304

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 reduced inflation to its announced goal of 5%. However, people were expecting inflation to fall to 7% and there was a favorable supply shock. In the short run which of the following made unemployment lower than otherwise?

• A)both people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock
• B)neither people expecting inflation to fall to 7% instead of 5%, and the favorable supply shock
• C)only the favorable supply shock
• D)only people expecting inflation to fall to 7% instead of 5%

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Definitions:

Collection Fee

A charge assessed for the service of collecting delinquent payments on loans or bills.

Credit Card Sales

Credit card sales refer to transactions in which goods or services are purchased by customers using credit cards as the method of payment.

Cash Equivalents

Short-term, highly liquid investments with original maturities of three months or less, easily convertible into a known amount of cash.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for financing inventory and accounts receivable.