SOLVED

1) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, the inflation rate exceeded 10%. By the end of 1986 the inflation rate had been brought down to 1.9%. Which of the following is true about the Volcker Disinflation? A) lower inflation resulted from a tightening of monetary policy B) by raising the federal funds rate to over 20%, the Federal Reserve stimulated the economy resulting in lower levels of both inflation and the unemployment rate by the early 1980s C) the unemployment rate was brought down by 1982 but it took longer to reach lower inflation rates D) all of the above E) none of the above 2) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, the inflation rate exceeded 10%. By the end of 1986 the inflation rate had been brought down to 1.9%. Which of the following is true about the Volcker Disinflation? A) lower inflation resulted from a tightening of monetary policy B) by raising the federal funds rate to over 20%, the Federal Reserve slowed the economy and was able to cut inflation in half by 1982 at the cost of a substantial hike in the unemployment rate causing a recession C) this policy induced a substantial negative output gap D) all of the above E) none of the above 3) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, the inflation rate exceeded 10%. By 1982 the unemployment rate soared to 9.7% and inflation was cut to 6.2%. By the end of 1986 the unemployment rate was brought down to 7% and the inflation rate was brought further down to 1.9%. Which of the following is an appropriate description of the mechanism behind the Volcker Disinflation? A) The AD curve shifted right due to the autonomous tightening of monetary policy which explains the lowering of the unemployment rate between 1982 and 1986 B) With the Federal Reserve raising interest rates, the AD curve shifted to the left lowering the equilibrium level of inflation but inducing a negative output gap, which explains the lower inflation rate between 1979 and 1982 at the cost of a higher unemployment rate over the same period C) The LRAS curve shifted left due to the tightening of monetary policy generating a positive output gap or a negative unemployment gap which explains the lowering of the unemployment rate between 1982 and 1986 D) all of the above E) none of the above 4) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, the inflation rate exceeded 10%. By 1982 the unemployment rate soared to 9.7% and inflation was cut to 6.2%. By the end of 1986 the unemployment rate was brought down to 7% and the inflation rate was brought further down to 1.9%. Which of the following is an appropriate description of the mechanism behind the Volcker Disinflation? A) The AD curve likely shifted left due to the autonomous tightening of monetary policy which explains the lowering of the inflation rate between 1979 and 1982 B) Due to the autonomous tightening of monetary policy, a negative output gap ensued which explains the increase in the unemployment rate between 1979 and 1982 C) By 1982, it is likely that equilibrium output was lower than potential leading the AS curve to shift to the right to close the output gap toward a general equilibrium which explains the reduction in the unemployment rate and the further reduction in inflation between 1982 and 1986 D) all of the above E) none of the above 5) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, both the inflation and unemployment rates were higher than during most of the 1950s, 60s and early 70s. The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control. Which of the following is an appropriate description had Mr. Volker conducted an expansionary monetary policy instead? A) The AD curve would have likely shifted right due to the Federal Reserve lowering of interest rates which might have resulted in a temporary decline in the unemployment rate but at the cost of skyrocketing inflation B) Due to the autonomous expansion of monetary policy, a temporary positive output gap might have ensued thereby decreasing the unemployment rate while exerting huge inflationary pressures in the economy C) Due to the autonomous expansion of monetary policy the unemployment rate might have artificially declined. However, the AS curve would then have shifted left to close the ensuing positive output gap thereby returning the unemployment rate to the levels prior to the Fed’s action while, likely, making inflation even worse than before Mr. Volker took office D) all of the above E) none of the above 6) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, both the inflation and unemployment rates were higher than during most of the 1950s, 60s and early 70s. The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control. What would have been a likely result had Mr. Volker conducted an expansionary monetary policy instead? A) Inflation would have been made worse right away but unemployment would have been permanently lowered B) In the long run the unemployment problem would not have been fixed and the inflation problem would have been made much worse C) In the short-run both inflation and unemployment would have declined but in the long-run unemployment would have been worse than before the Fed’s action D) In the short-run both inflation and unemployment would have been made worse but both would have been lowered in the long-run E) none of the above 7) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, both the inflation and unemployment rates were higher than during most of the 1950s, 60s and early 70s. The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control. What would have been a likely short-run result had Mr. Volker conducted an expansionary monetary policy instead? A) Inflation would have been made worse right away but unemployment would have been lowered B) Both inflation and unemployment would have declined C) Both inflation and unemployment would have been made worse D) There would have been no effect on the unemployment and inflation rates E) none of the above 8) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, both the inflation and unemployment rates were higher than during most of the 1950s, 60s and early 70s. The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control. What would have been a likely long-run result had Mr. Volker conducted an expansionary monetary policy instead? A) Eventually, inflation would have been made worse but unemployment would have been lowered B) Eventually, both the inflation and unemployment rates would have declined C) Eventually, both inflation and unemployment would have been made worse D) There would have been no effect on the unemployment and inflation rates E) none of the above 9) By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, both the inflation and unemployment rates were higher than during most of the 1950s, 60s and early 70s. The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control. What would have been a likely long-run result had Mr. Volker conducted an expansionary monetary policy instead? A) Eventually, inflation would have been made worse and unemployment would not have been fixed B) Eventually, both the inflation and unemployment rates would have declined C) Eventually, inflation would have been fixed and unemployment would have been made worse D) There would have been no effect on the unemployment and inflation rates E) none of the above 10) The March 2000 “tech bubble” burst caused the aggregate demand curve to shift to the left by ________. A) causing an upward spike in the real interest rate B) reducing autonomous spending by households and businesses C) reducing government spending on high-tech equipment D) all of the above E) none of the above