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?

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Conducting an expansionary monetary policy would have increased the money supply which would have encouraged borrowing and spending, leading to increased demand for goods and services. This increase in demand would have put upward pressure on prices, exacerbating inflation. Additionally, the increase in demand and production would have likely led to an increase in employment in the short run, but in the long run, inflationary pressures would have made it difficult to sustain such growth, which would have ultimately led to even higher unemployment rates. Therefore, an expansionary monetary policy would have worsened both inflation and unemployment in the long run.

By the Time Paul Volcker Took Office as the New