In the Early 1970s, President Nixon Inherited an Economy That

Multiple Choice

In the early 1970s, President Nixon inherited an economy that was operating with an inflationary gap. The Nixon administration rationalized that through a combination of a government spending cuts and the Fed's decreasing the money growth rate, it could successfully

A) reduce inflation, which would then cause unemployment to fall.
B) get the economy to slide down along the Phillips curve, thereby trading off a reduction in inflation for an increase in unemployment.
C) halt any increases in the price level by increasing productivity which would then return the economy to its potential output.
D) get the economy to slide up along the Phillips curve, thereby trading an increase in unemployment for deflation.