Which of the following describes the Volcker disinflation most accurately?

• A. A period in the early 1980s when the Federal Reserve raised interest rates sharply to reduce high inflation.
• B. A policy of gradual reduction in government spending to control inflation.
• C. An era characterized by persistent deflation and falling price levels in the United States.
• D. A time when the Federal Reserve lowered interest rates to stimulate economic growth and increase inflation.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the context of the Volcker disinflation, which refers to a specific period in U.S. economic history during the early 1980s.
2. Step 2: Recall that Paul Volcker was the Chairman of the Federal Reserve at that time and implemented monetary policies aimed at controlling inflation.
3. Step 3: Recognize that the key feature of the Volcker disinflation was the Federal Reserve's decision to sharply increase interest rates to reduce the then-high inflation rates.
4. Step 4: Compare the given options to this historical fact: the correct description involves raising interest rates sharply to combat inflation, not gradual government spending cuts, deflation, or lowering interest rates.
5. Step 5: Conclude that the most accurate description is the one stating that the Federal Reserve raised interest rates sharply in the early 1980s to reduce high inflation.