Principles of Economics- Mankiw (5th) 758

Principles of Economics- Mankiw (5th) 758 - 782 PA R T T W...

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782 PART TWELVE SHORT-RUN ECONOMIC FLUCTUATIONS forecasts made by commercial forecasting firms: Their forecasts of inflation fell more slowly in the 1980s than did actual inflation. Thus, the Volcker disinflation does not necessarily refute the rational-expectations view that credible disinflation can be costless. It does show, however, that policymakers cannot count on people immediately believing them when they announce a policy of disinflation. THE GREENSPAN ERA Since the OPEC inflation of the 1970s and the Volcker disinflation of the 1980s, the U.S. economy has experienced relatively mild fluctuations in inflation and unem- ployment. Figure 33-12 shows inflation and unemployment from 1984 to 1999. This period is called the Greenspan era, after Alan Greenspan who in 1987 fol- lowed Paul Volcker as chairman of the Federal Reserve. This period began with a favorable supply shock. In 1986, OPEC members started arguing over production levels, and their long-standing agreement to re- strict supply broke down. Oil prices fell by about half. As the figure shows, this fa-
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