Monetary Policy in Hyperion
In Hyperion the Department of Finance is responsible for monetary policy. Hyperion has had an inflation rate of 25% for many years.
-Refer to Monetary Policy in Hyperion.Suppose that the Hyperion Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but it actually raises inflation to 30%.Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%.Then
A) unemployment falls, but it would have fallen less if people had been expecting 12.5% inflation.
B) unemployment falls, but it would have fallen less if people had been expecting 25% inflation.
C) unemployment rises, but it would have risen less if people had been expecting 12.5% inflation.
D) unemployment rises, but it would have risen less if people had been expecting 25% inflation.
Correct Answer:
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