Question

During the 8 years of stagflation just prior to the Volcker Regime Change,

Group of answer choices

a) the Fed had been trying to keep nominal interest rates at a targeted level.
b) the Fed had been trying to keep the growth of M1 at a targeted level.
c) the Fed had been trying to keep the volume of bank loans at a targeted level.
d) the Fed had been encouraging banks to hold excess reserves.
e) the Fed had been using a policy of administered rates rather than a policy of open market operations.

Answer 1

Before the Volcker Regime Change, economists advocated for a steady money supply growth, while the Federal Reserve, under Volcker, aimed to control inflation by slowing money growth and increasing nominal interest rates, resulting in a severe recession.

Step-by-step explanation:

The period before the Volcker Regime Change at the Federal Reserve, spanning the late 1970s and early 1980s, was characterized by a situation known as stagflation, which included high inflation and stagnant economic growth. During this time, economists like Nobel laureate Milton Friedman advocated for a monetary policy that would increase the money supply at a steady rate, specifically aiming for a growth of about 3% per year. Their argument was that such steady growth would align with the real economy's growth and reduce economic instability caused by central bank discretion. The Federal Reserve under Paul Volcker took decisive action to combat the high inflation rates of the 1970s by slowing money growth and boosting nominal interest rates, despite the short-term cost of inducing a severe recession.