Monetary Policy in Mokania

question 43

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 reduced inflation to its announced goal of 5%.However its efforts made the unemployment rate rise by 10 percentage points for a year while output fell by 30 percent for a year.Which of the following is correct?

• A)Initially people's inflation expectations had been higher than 5%.The sacrifice ratio was 3.
• B)Initially people's inflation expectations had been higher than 5%.The sacrifice ratio was 1.
• C)Initially people's inflation expectations had been lower than 5%.The sacrifice ratio was 3.
• D)Initially people's inflation expectations had been lower than 5%.The sacrifice ratio was 1.

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Definitions:

Equilibrium Level

The state at which market supply and demand balance each other, resulting in stable prices.

Exports And Imports

The selling of goods and services produced in one country to another country (exports) and the buying of goods and services from another country (imports).

World Price Level

The average of prices for goods and services across different countries, adjusted for exchange rate differences, reflecting the global cost of living.

Diagram

A simplified drawing showing the appearance, structure, or workings of something, often used for explanatory purposes.