Why did many economists during the 1960s and 1970s believe that expansionary macroeconomic policy that resulted in inflation would reduce the rate of unemployment?
A) They failed to realize that the expansionary policy would stimulate aggregate demand.
B) They failed to realize that the expansionary policy would reduce real interest rates.
C) They failed to incorporate expectations into their analysis.
D) They thought that money growth would simply lead to a proportional increase in the price level.

Question

Why did many economists during the 1960s and 1970s  believe that expansionary macroeconomic policy that resulted in inflation would reduce the rate of unemployment?
A) They failed to realize that the expansionary policy would stimulate aggregate demand.
B) They failed to realize that the expansionary policy would reduce real interest rates.
C) They failed to incorporate expectations into their analysis.
D) They thought that money growth would simply lead to a proportional increase in the price level.

Quizplus · Accepted Answer

Economists during the 1960s and 1970s often did not incorporate expectations into their analysis, leading them to believe in a stable trade-off between inflation and unemployment, as described by the Phillips Curve.

Why Did Many Economists During the 1960s and 1970s Believe That