Monetary Policy in Flosserland

question 21

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 it actually raises inflation to 30%.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.Then

• A)unemployment falls,but it would have fallen less if people had been expecting 12.5% inflation.
• B)unemployment falls,but it would have fallen less if people had been expecting 25% inflation.
• C)unemployment rises,but it would have risen less if people had been expecting 12.5% inflation.
• D)unemployment rises,but it would have risen less if people had been expecting 25% inflation.

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