In the early 1970s, President Nixon inherited an economy that was operating with an inflationary gap.As suggested by the Phillips curve hypothesis, policy makers instituted a combination of contractionary fiscal and monetary policies to eliminate the output gap.Which of the following occurred as a result?

Question

Quizplus · Accepted Answer

The policy prescriptions put forth by the Phillips curve hypothesis did not have the intended outcome. Instead of reducing inflation and simultaneously increasing employment, the policies resulted in a rise in unemployment with very little reduction in inflation. This outcome suggested that the Phillips curve relationship was not a stable one and that it could shift over time.

In the Early 1970s, President Nixon Inherited an Economy That