CHAPTER 33THE SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT777accommodate the supply shock with higher money growth. (As we saw in Chap-ter 31, policymakers are said to accommodatean adverse supply shock when theyrespond to it by increasing aggregate demand.) Because of this policy decision, therecession that resulted from the supply shock was smaller than it otherwise mighthave been, but the U.S. economy faced an unfavorable tradeoff between inflationand unemployment for many years. The problem was compounded in 1979, whenOPEC once again started to exert its market power, more than doubling the priceof oil. Figure 33-9 shows inflation and unemployment in the U.S. economy duringthis period.In 1980, after two OPEC supply shocks, the U.S. economy had an inflation rateof more than 9 percent and an unemployment rate of about 7 percent. This combi-nation of inflation and unemployment was not at all near the tradeoff that seemedpossible in the 1960s. (In the 1960s, the Phillips curve suggested that an unem-
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