During most of the 1970s, officials at the Fed:

Question

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During the 1970s, the Fed overestimated the growth rate of potential GDP and underestimated inflation. This was due to the Phillips Curve model which suggested that there was a trade-off between unemployment and inflation. The Fed believed that by increasing the rate of economic growth, they could reduce unemployment but this led to higher inflationary pressures. In the end, the Fed had to focus on reducing inflation rather than promoting growth.

During Most of the 1970s, Officials at the Fed