Monetary Policy in Highland

question 305

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 the unemployment rate was on average higher for many years after. A newspaper editorial argues that the unemployment rate had moved to this higher natural rate because (1) by itself the decrease in inflation had permanently increased unemployment and (2) that at the same time the central bank was fighting inflation the government of Highland had made a large increase in the minimum wage. Which of these arguments is consistent with the Phillip's curve model?

• A)both explanations 1 and 2
• B)neither explanation 1 nor 2
• C)explanation 1 but not explanation 2
• D)explanation 2 but not explanation 1

---

Definitions:

Modern Science

A systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe.

Hawthorne Studies

A series of productivity experiments conducted from 1924 to 1932, which concluded that workers' performance is influenced more by social factors and their working conditions than by physical or environmental factors.

Human Relations

An area of management focusing on the interpersonal relationships among employees, aiming to improve job satisfaction, motivation, and productivity.

Human Systems Contingency Model

This model suggests that effective organizational management and design depend on fitting the organization's structure and processes to the conditions or context in which it operates.