In the early 1980's the Fed tightened monetary policy.Over the next few years
A)inflation remained high and unemployment rose.
B)inflation fell but unemployment rose temporarily.
C)inflation and unemployment fell.
D)inflation and unemployment rose.

Question

Quizplus · Accepted Answer

The tightening of monetary policy by the Fed led to a decrease in the money supply and an increase in interest rates, which led to a decrease in inflation. However, the increase in interest rates also led to temporary rise in unemployment as businesses adjusted to the new cost of borrowing. Therefore, inflation fell but unemployment rose temporarily.

In the Early 1980's the Fed Tightened Monetary Policy