By the Time Paul Volcker Took Office as the New

Multiple Choice

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By 1982 the unemployment rate soared to 9.7% and inflation was cut to 6.2%.By the end of 1986 the unemployment rate was brought down to 7% and the inflation rate was brought further down to 1.9%.Which of the following is an appropriate description of the mechanism behind the Volcker Disinflation?

A) The AD curve likely shifted left due to the autonomous tightening of monetary policy which explains the lowering of the inflation rate between 1979 and 1982.
B) Due to the autonomous tightening of monetary policy,a negative output gap ensued which explains the increase in the unemployment rate between 1979 and 1982.
C) By 1982,it is likely that equilibrium output was lower than potential leading the AS curve to shift to the right to close the output gap toward a general equilibrium which explains the reduction in the unemployment rate and the further reduction in inflation between 1982 and 1986.
D) all of the above
E) none of the above