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DATA

  1890 Census
  Hull House
  Infant Mortality
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  Boas' Study
  Middletown
  Depression Indicators
  Recent Social Trends
  Middletown II
  African Americans
  Women
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  Baby Boom
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  Professional Women
  Social Disruptions
  Inflation
  Middletown III
  Air Fares
  Stock Market
  Crime
  Middletown IV

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Inflation

Interest rates and inflation hit record highs in the late 1970s and early 1980s. 

inflation chart

By the 1970s, it was accepted economic doctrine that modest amounts of inflation were an acceptable price to pay as a consequence of government efforts to keep unemployment low. This application of Keynesian theory broke down in the 1970s when a long period of high inflation and high unemployment occurred. This was caused "stagflation." Milton Friedman provided an explanation when he wrote that people would take inflation into account in their plans and so the long-term effect of reducing unemployment by increasing the money supply was a mirage. Eventually, ever-higher rates of inflation would be needed to stimulate hiring to keep unemployment low. The economy would collapse. 

This "monetarist" theory was put into effect by Paul Volcker when he was Chairman of the Board of Governors of the Federal Reserve System in the late 1970s and early 1980s. He raised interest rates and reduced the money supply. The country entered a recession, unemployment went up, but inflation came down very fast. Then unemployment slowly came down and the recession ended, but high inflation did not return and had not returned by 2000.

Related Links:

Program Segment 14

Interviews:
Volcker
Kahn
Friedman

Book References:
Average Earnings
Inflation

 

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