The \"Volcker disinflation\" was A. a significant reduction in the inflation rat

Question

The "Volcker disinflation" was

A. a significant reduction in the inflation rate between 1979 and 1989, under the leadership of Fed Chairman Paul Volcker.

B. an episode of stagflation that ravaged the U.S. economy between 1979 and 1989, under the leadership of Fed Chairman Paul Volcker.

C. a deflationary cycle that plagued the economy between 1979 and 1989, under the leadership of Fed Chairman Paul Volcker.

D. evidence that workers and firms really had rational expectations since they adjusted their expectations of inflation as soon as the Fed's monetary policy announcement was made.

The unemployment rate

A. remained unchanged at 6% during the period of the Volcker disinflation.

B. rose from 6% to a higher rate in the beginning of the Volcker disinflation, but as the public started using rational expectations, the unemployment rate fell back to 6%.

C. fell from 10% to 6% during the period of the Volcker disinflation.

D. rose from 6% to 10% during the period of the Volcker disinflation.

Explanation / Answer

1) The change in inflation that occurred during 1980 through 1984, when the Federal Reserve System was headed by Paul Volcker.

2) During his time as the chairman of the Fed, Volcker is credited with ending the high levels of inflation that the United States experienced during the 1970s and early 1980s

3) When he became chairman in 1979, inflation was high and peaked in 1981 at 13.5%. However, due to the work of Volcker and the rest of the board, the inflation rate dropped to 3.2% by 1983.

4) Volcker raised the federal funds rate from 11.2% in 1979 to 20% in June of 1981. The unemployment rate became higher than 10% during this time as well.

5) Volcker chose to enact a policy of preemptive restraint during the economic upturn which increased the real interest rates. Despite his level of success, Volcker’s Federal Reserve board drew some of the strongest political attacks and protests in the history of the Federal Reserve. The protests were a result of the negative effects that the high interest rates had on the construction and farming industries

6) Volcker’s policy also pushed the President and Congress to adopt a plan to balance the budget. Volcker’s tenure as the chairman of the Federal Reserve resulted in sound monetary and fiscal integrity that achieved the goal of price stability.

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