Ch9.2 - 6 T he Cost of Disinflation 6 6 The Cost of...

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The Cost of Disinflation 6.
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6. The Cost of Disinflation 57 Since ongoing inflation is generally the result of rapid money growth. The prescription for stopping inflation appears to be simple: Reduce the rate of money growth. Unfortunately, the process of disinflation—the reduction of the inflation rate—by slowing money growth may lead to high unemployment and growth may lead to high unemployment and recession.
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6.1.1 How much unemployment? A d f H L ? And for How Long? 58 A point-year of excess unemployment is a difference between the actual and the natural difference between the actual and the natural unemployment rate of one percentage point for one year. For example, if u n =6%, an unemployment rate of 8% four years in a row corresponds to 4 x (8- 6) 8 point ears of e cess nemplo ment 6)=8 point-years of excess unemployment.
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