Review

The U.S. economy suffered a major setback against inflation during 1973: Average prices, as measured by the GNP price deflator, rose at a 6.8% annual rate over the first three quarters of the year. From 1965 to 1972 prices rose at an average 4% rate. Fiscal developments became less expansive in 1973, interest rates rose markedly, and the growth rate of the monetary base slowed slightly.

The typical textbook approach to macroeconomic analysis is almost completely barren with respect to what has become characterized as the “monetarist position” on the effects of monetary and fiscal policy actions.