Economics Essays - Inflation Tone Of Voice In Essays

At the conclusion of World War II, Congress turned its attention to policies it hoped would promote greater economic stability.Most notable among the laws that emerged was the Employment Act of 1946.The origins of the Great Inflation were policies that allowed for an excessive growth in the supply of money—Federal Reserve policies.To understand this episode of especially bad policy, and monetary policy in particular, it will be useful to tell the story in three distinct but related parts.It eventually declined to average only 3.5 percent in the latter half of the 1980s.While economists debate the relative importance of the factors that motivated and perpetuated inflation for more than a decade, there is little debate about its source.

In 1964, inflation measured a little more than 1 percent per year.The idea that monetary policy can and should be used to manage aggregate spending and stabilize economic activity is still a generally accepted tenet that guides the policies of the Federal Reserve and other central banks today.But one critical and erroneous assumption to the implementation of stabilization policy of the 1960s and 1970s was that there existed a stable, exploitable relationship between unemployment and inflation.It had been in this vicinity over the preceding six years.Inflation began ratcheting upward in the mid-1960s and reached more than 14 percent in 1980.The orthodoxy guiding policy in the post-WWII era was Keynesian stabilization policy, motivated in large part by the painful memory of the unprecedented high unemployment in the United States and around the world during the 1930s.The focal point of these policies was the management of aggregate spending (demand) by way of the spending and taxation policies of the fiscal authority and the monetary policies of the central bank.Specifically, it was generally believed that permanently lower rates of unemployment could be “bought” with modestly higher rates of inflation.The idea that the “Phillips curve” represented a longer-term trade-off between unemployment, which was very damaging to economic well-being, and inflation, which was sometimes thought of as more of an inconvenience, was an attractive assumption for policymakers who hoped to forcefully pursue the dictates of the Employment Act.During World War II, the world’s industrial nations agreed to a global monetary system that they hoped would bring greater economic stability and peace by promoting global trade.That system, hashed out by forty-four nations in Bretton Woods, New Hampshire, during July 1944, provided for a fixed rate of exchange between the currencies of the world and the US dollar, and the US dollar was linked to gold.

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