Monetary Policy in Flosserland

question 36

Multiple Choice

Monetary Policy in Flosserland

In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.

-Refer to Monetary Policy in Flosserland.Suppose that the Flosserland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but that it actually leaves inflation at 25%.Suppose that the public had expected that the Department of Finance would reduce inflation,but only to 20%.Then

• A)unemployment falls,but it would have fallen more if people had been expecting 12.5% inflation.
• B)unemployment falls,but it would have fallen more if people had been expecting 22% inflation.
• C)unemployment rises,but it would have risen more if people had been expecting 12.5% inflation.
• D)unemployment rises,but it would have risen more if people had been expecting 22% inflation.

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Definitions:

Premium Expense

The cost associated with purchasing an insurance policy or the amount over the face value paid for a bond or stock.

Coupon Redemption

The process of exchanging a coupon for the value or discount it represents when purchasing goods or services.

Recipe Book

A collection of culinary recipes and guidelines for preparing food.

Estimated Liability

An obligation that can be reasonably estimated but whose exact value and timing are not known.