ECON 2133 Lecture Notes - Lecture 1: Disinflation, Prime Rate, Longrun
Document Summary
Was thought that there was a negative tradeoff between inflation and unemployment (higher inflation = lower employment rate) Unemployment rate was 6. 5%, inflation was 1% For the next few years this is what happened; proved them right (up until. 1969, it was the largest expansion to date) 1969: unemployment was 3% and inflation was 5% Wage-price spiral: wages go up, prices go up and vise versa (continuously) Produced a constantly shifting phillips curve (unstable & not exploitable) Proved that the long-term phillips curve was vertical. 4x inflation of world price of oil overnight. 1979, 14% inflation rate and going higher, 8. 5 unemployment rate, 21% prime interest rate. Treasury was borrowing money in securities denominated in foreign currencies. August of 1979: jimmy carter demanded end to inflation (paul volker becomes federal chair) They knew the recession was coming and that they were going to be the cause of it (following history)