Monetary Policy in Mokania

Multiple Choice

Monetary Policy in Mokania
Mokania has had inflation of 15% for many years. Mokania establishes a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate.

-Refer to Monetary Policy in Mokania.The Bank of Mokania reduced inflation to its announced goal of 5%.However its efforts made the unemployment rate rise by 10 percentage points for a year while output fell by 30 percent for a year.Which of the following is correct?

A) Initially people's inflation expectations had been higher than 5%.The sacrifice ratio was 3.
B) Initially people's inflation expectations had been higher than 5%.The sacrifice ratio was 1.
C) Initially people's inflation expectations had been lower than 5%.The sacrifice ratio was 3.
D) Initially people's inflation expectations had been lower than 5%.The sacrifice ratio was 1.