The link between money supply, money demand, and inflation was explored in this module. Sometimes inflation is referred to as "demand-pull" or "cost-push" in nature. The nature of inflation will be further explored in the next module when you are introduced to a model of aggregate demand and aggregate supply. As market demand and market supply determine equilibrium price and quantity in one particular market, the aggregate demand and aggregate supply model determines macroeconomic equilibrium. In this way we can better understand why GDP fluctuates and why the price level changes. If the inflation is "demand-pull", it is due to an increase in aggregate demand. The additional spending is "pulling" up prices. And if the inflation is "cost-push", it is due to a decrease in aggregate supply, where increased production costs are "pushing" up prices.

For now, let's compare and contrast some of the experiences the United States has had with inflation in recent decades. Research and post your findings and opinions regarding the nature of inflation and type of monetary policy for each of the following periods:

First, what do you think caused the inflation of the 1970's? Do you think it was demand-pull or cost-push? Explain. Describe the monetary policy followed by Paul Volcker, who became Chair of the Federal Reserve in 1979. What do you think led to this policy? What were some of the results of this policy? What is the definition of "disinflation"?

Next, find what kind of monetary policy was followed by Fed Chair Greenspan. Do you agree with some who criticize this policy and say it contributed to the financial crisis which preceded the Great Recession of 2007-2009? Explain.

Finally, research any changes in the Federal Reserve's approach to inflation under Chair Jerome Powell. Do you think it can ever be possible that inflation is too low? Explain your view. Cite any articles

Public Answer

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