Review

The recovery is solid. That unfortunate combination of falling output and rising rates of price increase which characterized the latest recession has been sharply reversed. There remains sufficient capacity for output gains to continue for some time, but many observers are monitoring price data and policymakers’ actions closely for any signs which might foreshadow a resumption of inflationary pressures.

Due to both its relative size and its tendency toward large cyclical fluctuations, the automobile industry has tended to receive a great deal of attention in analyses of current economic conditions. In terms of new car sales, developments of the past three years have been particularly well publicized, popular topics of concern. In part, this has probably been a response to the impact of the oil embargo which highlighted developments in a number of industries. The purpose of this article is to provide some perspective on this recent period by comparing it with the pattern of new car sales in the previous three recession/recovery periods.

That group which gathers under the banner of monetarism has long blamed excessive monetary expansion as the source of inflation. They have argued that inflation, as a persistent increase in the general price level, results solely from a maintained expansion of the money stock at rates in excess of increases in the amount of money demanded in the economy. The validity of this view, or at least its usefulness, rests on the issue of whether or not its predictions are consistent with the evidence.