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,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.Which of the following is an appropriate description had Mr.Volker conducted an expansionary monetary policy instead?

A) The AD curve would have likely shifted right due to the Federal Reserve lowering of interest rates which might have resulted in a temporary decline in the unemployment rate but at the cost of skyrocketing inflation.
B) Due to the autonomous expansion of monetary policy,a temporary positive output gap might have ensued thereby decreasing the unemployment rate while exerting huge inflationary pressures in the economy.
C) Due to the autonomous expansion of monetary policy the unemployment rate might have artificially declined.However,the AS curve would then have shifted left to close the ensuing positive output gap thereby returning the unemployment rate to the levels prior to the Fed's action while,likely,making inflation even worse than before Mr.Volker took office.
D) all of the above
E) none of the above