In 1979, the inflation rate reached about 14 percent. The Federal Reserve ________ interest rates, sending the economy into a(n) ________. When doing so, the Federal Reserve knew this would be the case because of ________.
A) raised; expansion; the Phillips curve
B) raised; recession; the Phillips curve
C) raised; recession; Okun's law
D) lowered; recession; the Phillips curve
E) lowered; expansion; the Phillips curve

Question

Quizplus · Accepted Answer

The Federal Reserve raised interest rates, which led to a recession. This is known as contractionary monetary policy, which was implemented to combat the high inflation rate of 14 percent in 1979. The Phillips curve shows the inverse relationship between inflation and unemployment, but it does not directly explain the Federal Reserve's decision to raise interest rates. Okun's law is also not directly related to this situation.

In 1979, the Inflation Rate Reached About 14 Percent