Scenario 35-2 ​

Multiple Choice

Scenario 35-2
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In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years.
-Refer to Scenario 35-2. 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.