Monetary Policy in Southland

Multiple Choice

Monetary Policy in Southland
In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Southland. Suppose that the Southland 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.