ABSTRACT
The system began to break down in the late 1960s, when the United States experienced a rising rate of inflation relative to its trading partners. Unemployment and inflation were stable, both about 5 percent. The economy was at full employment, with a rate of inflation higher than one wishes to see. Real investment fell abruptly. Residential construction was especially volatile – down 19.6 percent in 1974 and 12.1 percent in 1975. Unemployment increased to 8.5 percent in 1975, and inflation jumped from 5.4 percent in 1973 to 9.0 percent in 1974 and 9.3 percent in 1975. The economy settled down to a calmer mode during 1976 to 1979. The time from 1979 to 1982 is a period for which the basic data do not tell the full story. Paul Volcker was appointed Fed Chairman by President Jimmy Carter in August 1979. The change in monetary policy produced a sharp increase in interest rates.
