ABSTRACT
The economic malaise that gripped the Western world in the 1970s, after the euphoria and optimism of the 1950s and 1960s, continued and deepened in the 1980. The growing size of the budget, the mounting tax burden, and the inflation-distorted tax structure has become a formidable roadblock for economic growth. This chapter analyses the view of some monetarists that stagflation and persistent unemployment are possible even in a perfectly competitive economy and found invalid, because of the failure to make the crucially important distinction between involuntary and voluntary unemployment. In a moderately competitive economy, money wages would at least stop rising and would gradually decline so that wage costs could decrease. In an open economy with substantial foreign trade and capital flows across the border, there arise additional complications the importance of which varies from country to country, depending on the size and structure of the economy.
