Consider the period from 1995 to 1999. The U.S. economy:
A) experienced the great productivity slowdown.
B) experienced increases in productivity that allowed the Fed the opportunity to raise the inflation rate.
C) experienced increases in productivity that allowed the Fed the opportunity to let the inflation rate fall.
D) saw its potential level of output decrease.

Question

Quizplus · Accepted Answer

During the period from 1995 to 1999, the U.S. economy experienced increases in productivity, which allowed the Fed the opportunity to let the inflation rate fall. This was due to the fact that productivity gains resulted in a lower cost of production, allowing firms to maintain or even lower prices, without sacrificing profit margins. As a result, the Fed was able to pursue a monetary policy that aimed at reducing inflation without having to concern itself with inducing a recession.

Consider the Period from 1995 to 1999