Inflation, Recession And Unemployment

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Inflation, Recession And Unemployment

With fiscal policy or monetary policy or both, we curb inflation by creating a recession and unemployment.

And, as we?ve said, it takes a good deal of unemployment to prevent inflation.

Whoever arranged matters this way is open to criticism.

Modern recessions, by the way, are interesting.

Even when caused deliberately by monetary or fiscal policy, they are still thought to be a natural phenomenon, a manifestation of the classical cycle we just mentioned.

Only the recovery, Wand when it comes, is considered to be the work of human hands and economic intelligence. President Ford's economists, Messrs Simon, Greenspan and Burns, whom we mentioned earlier, slowed down the great inflation of 1974-5 by bringing on the worst recession since the Great Depression. This was attributed to the natural ebb of the business cycle. Later they and their successors praised themselves for engineering a commendably rapid recovery. A good business.

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Raising Taxes, Reducing Public Expenditures

If pressed hard enough, and against all the outcry, expenditure cuts and tax increases would reduce public and private spending and cut back on aggregate demand- demand for all goods and services.

But fiscal policy also has a discriminatory effect; and it operates very differently in different parts of the economy.

In the half dominated by the large corporations there is, as we have so often seen, the power to control prices - to resist price reduction and increase prices if costs go up.

So the first effect of a reduction or curtailment of demand in this part of the economy is on... see: Raising Taxes, Reducing Public Expenditures

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