There is consensus that the Federal Reserve System should have cut short the process of monetary deflation and banking collapse. If the Fed had done that, the economic downturn would have been far less severe and much shorter. Other policy areas where good policy can foster higher long-term growth include education, taxation, competition, basic research, openness to trade, and infrastructure. Second, there is evidence of existence of a long-term Cointegration relationship for the four models, according to the Bounds test, at a significance level of 1% with the F-test and t-test . Given that the value of the F-statistic and the value of the t-statistic are greater than the critical values, the four models cointegrate in the long-term, by rejecting the null hypothesis that there is no long-term relationship. The short-term analysis finds a long-term Cointegration relationship between the exogenous variables and the endogenous variable.

Consumers will benefit from deflation in the short term as the prices of goods will reduce. When the prices of goods reduce it increases the purchasing power of the consumers and also helps the consumers to save more. Inflation will benefit those people with large debts who can easily pay back their debts when prices rise up.

• The relationship between inequality and socio-economic outcomes vis-à-vis economic growth and socio-economic outcomes, is different in India from that in advanced economies. As I have shown, the primary contributor to the recent spike in inflation is core goods. The strength in real consumer spending has reflected a surge in spending on consumer goods . Real goods spending is currently about 15 percent higher than it was pre-pandemic, and there were a couple of months when it was 20 percent higher. Figure 1 shows inflation from 1969 to 2021, both by the consumer price index and by the personal consumption expenditure deflator. Some observers have tried to draw parallels between the current episode in inflation and the 1970s; this is incorrect.

After the Depression, the primary explanations of it tended to ignore the importance of the money supply. However, in the monetarist view, the Depression was “in fact a tragic testimonial to the importance of monetary forces”. In their view, the failure of the Federal Reserve to deal with the Depression was not a sign that monetary policy was impotent, but that the Federal Reserve implemented the wrong policies. They did not claim the Fed caused the depression, only that it failed to use policies that might have stopped a recession from turning into a depression.

The Phillips curve shows the trade-off between inflation and unemployment, but how accurate is this relationship in the long run? According to economists, there can be no trade-off between inflation and unemployment in the long run. Decreases in unemployment can lead to increases in inflation, but only harry markle blog wordpress in the short run. Graphically, this means the Phillips curve is vertical at the natural rate of unemployment, or the hypothetical unemployment rate if aggregate production is in the long-run level. Attempts to change unemployment rates only serve to move the economy up and down this vertical line.