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 mid-1977. You suggest the appropriate policy would be to ________. You reevaluate your policy in mid-1979 and conclude that you ________; using the Phillips curve, you see the country is now in ________.
A) lower taxes; failed to tame inflation; debt
B) lower interest rates; failed at taming inflation; a recession
C) raise interest rates; failed at taming inflation; expansion
D) raise interest rates; succeeded in taming inflation; a recession
E) raise taxes; succeeded in taming inflation; 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 mid-1977. You suggest the appropriate policy would be to ________. You reevaluate your policy in mid-1979 and conclude that you ________; using the Phillips curve, you see the country is now in ________.
A) lower taxes; failed to tame inflation; debt 
B) lower interest rates; failed at taming inflation; a recession 
C) raise interest rates; failed at taming inflation; expansion 
D) raise interest rates; succeeded in taming inflation; a recession 
E) raise taxes; succeeded in taming inflation; debt

Quizplus · Accepted Answer

As Federal Reserve chairman Volcker in mid-1977, the appropriate policy would be to raise interest rates to combat the high inflation shown in the graph. By mid-1979, Volcker would conclude that his policy failed to tame inflation and using the Phillips curve, he would see that the country is now in an expansion. Therefore, choice C is the best answer.

Refer to the Following Figure When Answering the Following Questions