Monetary Policy in Mokania

question 48

Multiple Choice

Monetary Policy in Mokania
Mokania has had inflation of 15% for many years. Mokania establishes a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate.

-Refer to Monetary Policy in Mokania.The Bank of Mokania 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 Mokania had reduced inflation to 5% rather than 3%.
• B)unemployment falls but it would have fallen by less if the Bank of Mokania had reduced inflation to 5% rather than 3%.
• C)unemployment rises but it would have risen by more if the Bank of Mokania had reduced inflation to 5% rather than 3%.
• D)unemployment rises but it would have risen by less if the Bank of Mokania had reduced inflation to 5% rather than 3%.

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Definitions:

Task Difficulty

The level of effort and skill required to successfully complete a task or assignment.

Become Cautious

To adopt a more careful and considerate approach towards decision-making or actions, often due to perceived risks or uncertainties.

Escalation of Commitment

The phenomenon where people increase their investment in a decision despite new evidence suggesting it may be wrong, often due to cognitive biases or emotional attachment.

Framing Error

A cognitive bias where the context or way in which information is presented affects decision-making or judgement.