Figure 12.6: IS-MP Curve
-Start from any equilibrium in Figure 12.6 to answer the following question. In 1980, U.S. inflation hit about 14 percent; Federal Reserve chairman ________ engineered a decline in inflation by ________, shown in the figure as movement from ________.
A) Volcker; raising inflation rates; point b to c
B) Bernanke; raising interest rates; point b to d
C) Volcker; lowering interest rates; point c to b
D) Volcker; raising interest rates; point b to c
E) Greenspan; lowering interest rates; point a to b

Question

Figure 12.6: IS-MP Curve 
-Start from any equilibrium in Figure 12.6 to answer the following question. In 1980, U.S. inflation hit about 14 percent; Federal Reserve chairman ________ engineered a decline in inflation by ________, shown in the figure as movement from ________.
A) Volcker; raising inflation rates; point b to c 
B) Bernanke; raising interest rates; point b to d 
C) Volcker; lowering interest rates; point c to b 
D) Volcker; raising interest rates; point b to c 
E) Greenspan; lowering interest rates; point a to b

Quizplus · Accepted Answer

The correct answer is D because Paul Volcker was the Federal Reserve Chairman in 1980 and he engineered a decline in inflation by raising interest rates, which is shown as a movement from point b to c on the IS-MP curve.