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 undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%.If Flosserlanders believe their government then which,if any,curve(s)shift left?
A)the short-run and the long-run Phillips curve
B)the short-run but not the long run Phillips curve
C)the long-run but not the short-run Phillips curve
D)neither the short-run nor the long-run Phillips curve

Question

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 undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%.If Flosserlanders believe their government then which,if any,curve(s)shift left?
A)the short-run and the long-run Phillips curve
B)the short-run but not the long run Phillips curve
C)the long-run but not the short-run Phillips curve
D)neither the short-run nor the long-run Phillips curve

Quizplus · Accepted Answer

If people believe the government will reduce inflation, their expectations adjust, causing the short-run Phillips curve to shift left, but the long-run Phillips curve remains unchanged.