Monetary Policy in Flosserland

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.