Monetary Policy in Mokania

question 75

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,people were expecting inflation to fall to 7% and there was a favorable supply shock.In the short run which of the following made unemployment lower than otherwise?

• A)both people expecting inflation to fall to 7% instead of 5%,and the favorable supply shock
• B)neither people expecting inflation to fall to 7% instead of 5%,and the favorable supply shock
• C)only the favorable supply shock
• D)only people expecting inflation to fall to 7% instead of 5%