Changes in the Cycle
The business cycle and the relationship between inflation and unemployment that I’ve described are those that prevailed in theory and reality until the 1970s. There have been some changes since then. Most important among these are the following:
• Lower inflation
• Higher productivity
• Faster response by businesses
• Fed-fueled booms and bubbles
Inflation erodes the value of the currency, and therefore the government, by means of monetary policy administered by the Federal Reserve, tries to prevent or at least control it. We will examine monetary policy in Part 4. In recent years, the Fed has been quite successful in keeping inflation low—although, as noted earlier in the previous section, other factors have also played ...