Refer to the Following Figure When Answering the Next Two $( \Delta \pi )$

question 2

Multiple Choice

Refer to the following figure when answering the next two questions.
Figure 12.11: Change in Inflation by Month (Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-Consider Figure 12.11, which shows the change in inflation $( \Delta \pi )$ from 1977 to 1981, by quarter. You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1) . You suggest the appropriate policy would be to ________. In the second quarter of 1981, you consider your performance, and you conclude that you ________; using the Phillips curve, you see the country is now ________.

• A) lower taxes; failed to tame inflation; in debt
• B) lower interest rates; failed at taming inflation; in a recession
• C) raise interest rates; succeeded in taming the recession; booming
• D) raise interest rates; succeeded in taming inflation; in a recession
• E) raise taxes; succeeded in taming inflation; in debt