Learning Journal 7.docx - 1 The Case in Point titled Some Reflections on the 1970s describes the changes in inflation and in unemployment in 1970 and

Learning Journal 7.docx - 1 The Case in Point titled Some...

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1. The Case in Point titled “Some Reflections on the 1970s” describes the changes in inflation and in unemployment in 1970 and 1971 as a watershed development for macroeconomic thought. Why was an increase in unemployment such a significant event? In 1970 and 1971 had its issues and crashed. The then president Richard Nixon had just come into office and hoped to bring the inflation down. The consumer price index had risen 4.7% during 1968, the highest rate since 1951. Mr. Nixon cut government purchases in 1969, and the Fed produced a sharp slowing in money growth. The president’s economic advisers predicted at the beginning of 1970 that inflation and unemployment would both fall. Appraising the 1970 debacle early in 1971, the president’s economists said that the experience had not been consistent with what standard models would predict. The economists suggested, however, that this was probably due to a number of transitory factors. Their forecast that inflation and unemployment would improve in 1971 proved wide of the mark— the unemployment rate rose from 4.9% to 5.9% (an increase of 20%), while the rate of
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