In the 1970's the Federal Reserve responded to an adverse supply shock.Its policy made

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The Federal Reserve's response to the adverse supply shock made the ensuing recession smaller, but in doing so produced a less favorable tradeoff between inflation and unemployment. This is because the Fed's policy involved increasing the money supply to stimulate economic growth, which led to inflationary pressures. The smaller recession was therefore accompanied by higher inflation, making the tradeoff between inflation and unemployment less favorable.

In the 1970's the Federal Reserve Responded to an Adverse