Question

Hi, My instructor is a had grader and I have no confidence in this course micro economics 202. I am researching monetary policies during 1960s-1970s and I'm having a hard time researching.

Answer 1

In 1960's and 70's normal unemployment was very low and inflation was high and so policy makers had to adopt different measures.However in 1970's there was rising oil prices and rising unemployment and poor economic growth as a result of cost push inflation of rising oil prices. .In 1960's and 1970's the monetary policy was consistently expansionary.There were fluctuations in the monetary policies in the 1960's and 70's .There was tightening of monetary policy in 1968 and in 1974 and the real Federal funds rate rose 2% in the two periods..These tightemnings of the monetary policy wsa because the Fed felt that inflation was too high and there was a need to bring down the inflation.So Fed decided on a recession.The 1974-75 recession was the result of oil price shock and the tightening of the monetray policy.This tightening of the monetary policy was successful in generating recession but was not successful in curing inflation.The policymakers in both the cases stopped as they felt that a output gap was created which would lead to bringing down the inflation.In 1960's and the 70's policy makers disliked inflation but they did not regard inflation to be damaging.In the 1960's inflation was regarded as the cost of making unemployment low in a permanent manner.In contrast in the 1980's inflation was regarded as causing damage to short run confidence and long run growth by the policymakers.