Refer to the following figure when answering the following questions.
Figure 12.11: Change in Inflation by Month
-Consider Figure 12.11. You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1). You suggest the appropriate policy would be to ________. In the second quarter of 1981, you consider your performance, and you conclude that you ________; using the Phillips curve, you see the country is now ________.
A) lower taxes; failed to tame inflation; in debt
B) lower interest rates; failed at taming inflation; in a recession
C) raise interest rates; succeeded in taming the recession; booming
D) raise interest rates; succeeded in taming inflation; in a recession
E) raise taxes; succeeded in taming inflation; in debt

Question

Refer to the following figure when answering the following questions.
Figure 12.11: Change in Inflation by Month  
-Consider Figure 12.11. You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1). You suggest the appropriate policy would be to ________. In the second quarter of 1981, you consider your performance, and you conclude that you ________; using the Phillips curve, you see the country is now ________.
A) lower taxes; failed to tame inflation; in debt 
B) lower interest rates; failed at taming inflation; in a recession 
C) raise interest rates; succeeded in taming the recession; booming 
D) raise interest rates; succeeded in taming inflation; in a recession 
E) raise taxes; succeeded in taming inflation; in debt

Quizplus · Accepted Answer

As Federal Reserve chairman Volcker in the first quarter of 1980, the appropriate policy would be to raise interest rates to combat inflation. In the second quarter of 1981, Volcker concludes that he has succeeded in taming inflation by raising interest rates, but this has led to a recession in the country. Therefore, the country is now in a recession according to the Phillips curve. So, the correct choice is D.

Refer to the Following Figure When Answering the Following Questions