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

question 49

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 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 in taming inflation; expansion
• D) raise interest rates; succeeded in taming inflation; a recession
• E) raise taxes; succeeded in taming inflation; debt

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Definitions:

Materials Quantity Variance

This measures the difference between the actual amount of materials used in production and the standard amount expected to be used, based on the level of output.

Standard Quantity

The benchmark or predetermined amount of materials expected to be used in the production of a good or service.

Actual Materials

The physical and actual quantities of materials used in the production process.

Standard Price

A predetermined cost assigned to materials, labor, and overhead, used in budgeting and variance analysis.