ABSTRACT
This chapter discusses some of the factors generating high inflation, with attention focused on the effect of monetary policy on aggregate demand and inflation, and the role of the rise in the price of energy as an independent contributor to inflation. This point will be addressed again in connection with the analysis of the impact on United States inflation of the second oil-price increase in the 1970s. In the first part of 1971, unemployment continued high at about 6 per cent, and although the inflation rate had declined somewhat it still remained at what was then a high rate of roughly 5 per cent. The aim of the program appears to have been to reduce costs in unemployment of fighting inflation using the traditional policy of demand restraint generated by high interest rates.
