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Economic Growth slowed
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Unemployment at 8.1%
fear of "creeping inflation". weaking international competitive position -
President Kennedy took office
appointed economists who steeped in Keynesian economics. They believed they could fine tune economy for long term economic growth with fiscal/monetary policies with both low unemployment and inflation. nobody supported expansionary policies. -
Period: to
minimal inflation
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Revenue Act of 1962
7% investment tax credit for any new investment -
President Kennedy announced additional tax legislation
Tax cuts were thought of as anti-recessionary -
Kennedy assasinated
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Revenue Act of 1964
During Johnson administration, deducted taxes. Federal budget was running a deficit, but spent less too. Represented "new economics", conservative keynesian. primary stimulus is fiscal policy - tax cuts. tax distribution less equal. -
restriction on wage and price
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Inflation from VIetnam War during Johnson administration
taxes were not increased and other government expenditures decreased -
Unemployment continued to fall, but profts were squeezed
Government competing with private sector for available output. Growth in spending exceeded growth in output, inflation jumped. Since govt. refused to raise taxes or cut expenditure, Fed tightened monetary policy. -
production of guns and butter
conflict between funding war on poverty and war in vietnam. Taxes were not raised, and spending on non military did not decrease, so it was financed by a decrease in government deficit. -
Period: to
Housing fell more than 40%
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Federal Reserve concluded that further tightening of money supply required
Sold some of its holdings of US government bonds. Demand for business loans rose, interest rates went up. Credit crucnch happened to many banks who were loaning out. Fed forced to buy govt bonds and promised banks loans if they slowed down their rate of expansion. Government also cooperated and reduced spending. Calmed financial markets. -
Inflation continues
real wages were not rising. Guideposts were doubted. EMployees went on strike. Johnson administration decided to make new policies about restrain wages, removed guideposts. -
Johnson administration 10% temporary tax surcharge
on personal and corporate income taxes to slow down expansion and reduce inflation. goverment asked to cut $6 billion from nondefense expenditures. -
Nixon takes office
Believed inflation was the problem. profit squeeze happened as a result of rising labor costs and slowdown in productivity growth. Unemployment rate reached a low of 3.5%. IMports limite ability of domestic producers to raise prices. Profit fell. Nixon etxtended temporary tax surcharge > budget surplus. -
Nixon administration passed restrictive policies to fight inflation
Unemployment increased and inflation persisted – stagflation. -
Fed continues to raise discount rate and sell bonds
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Economy contracted, unemployment rose to 4.9%
designed to lower inflation. higher unemlpoyment, workers would be less able to demand higher wages, rate of increae of wages slows down. Firms feel less presure to raise prices due to cheaper labor costs. Prices would stick given decline in consumer dmand and increased market competition. HOwever this did not happen. -
Economic Stabilization Act
Employees managed to push for high wages still, so economy experience staglation. Surpluses declining, US goods became comparatively expensive. Act froze wages salaries, prices and rents. Crisis of confidence in dollar, many foreign holders converted back to their own currency because dollar depreciated. Many countries wanted dollars converted into gold. -
New Economic Policy
To counter balance of payments problems, etc. Wages and prices were controlled and the dollar was no longer convertible for gold at a price $35 per ounce of gold. Also to improve prospect of Nixon's reelection. Imposed temporary surcharge of 10% on duitable imports.