Monetary Policy in Flosserland

question 36

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 that it actually leaves inflation at 25%.Suppose that the public had expected that the Department of Finance would reduce inflation,but only to 20%.Then

• A)unemployment falls,but it would have fallen more if people had been expecting 12.5% inflation.
• B)unemployment falls,but it would have fallen more if people had been expecting 22% inflation.
• C)unemployment rises,but it would have risen more if people had been expecting 12.5% inflation.
• D)unemployment rises,but it would have risen more if people had been expecting 22% inflation.

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Definitions:

Price

The monetary value assigned to a product or service, determined by various factors including supply and demand, cost of production, and market competition.

Economic Profit

The disparity between total monetary gains and overall financial outlay, accounting for both clear and obscure costs.

Monopoly Model

A market structure where a single firm dominates the market, with no close substitutes for its product.

Equilibrium

A market scenario where the balance between supply and demand stabilizes prices.