4. By the time Paul Volcker took office as the new Federal Reserve chairman in 1

Question

4. By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, both inflation and unemployment were much higher that during the 1950s, the 1960s, and the early 1970s. The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volcker Disinflation which was successful in bringing both problems under control. What would have been the likely short-run result had the Federal Reserve conducted an expansionary monetary policy instead?

a. Both inflation and unemployment would have declined.

b. Both inflation and unemployment would have increased.

c. Inflation would have increased but unemployment would have declined.

d. Inflation would have declined but unemployment would have increased.

e. None of the above.

and explain why

Explanation / Answer

d. Inflation would have declined but unemployment would have increased.

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