Monetary Policy in Mokania

question 19

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 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 Mokania 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

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Definitions:

Demand Pattern

The trend or sequence of customer demand for a product or service over a specific period of time, often analyzed for forecasting and inventory management.

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Customer Demand

The quantity of products or services that consumers are willing and able to purchase at various prices during a specific period.