interrelationships between inflation, recession, and unemployment posited by the Phillips Curve theory. Except for a brief oil shock to prices during the Iraqui occupation of Kuwait, the rate of inflation has fallen. For the first four months of 1991, the annualized rate of inflation has been only 2.5 percent.2 At the same time, the unemployment rate has steadily risen, and the level of economic activity has declined. The American economy in May 1991 is in at least the third consecutive calendar quarter of economic recession.
The postulated interrelationships between inflation, recession, and unemployment, thus, appear to be vindicated.
2Council of Economic Advisers, Economic Indicators (Washington: U.S. Government Printing Office, May 1991), 17.Strong policy measures designed to control inflation may be expected to cause an increase in the rate of unemployment, and a decrease in the level of economic activity recession. Strong policy measures designed to boost employment and the level of economic activity, on the other hand, ma
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