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Higher inflation to spur economic growth and job creation.

In August 1994, Alan Blinder, recently appointed as vice chairman of the Federal Reserve Board, gave a talk in which he argued that the Fed should be willing to tolerate somewhat higher inflation in order to spur economic growth and job creation. The dollar fell, almost immediately. Explain the link between Dr. Blinder's views and the value of the dollar.

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The view that the Fed should try to stimulate economic growth at the risk of somewhat more inflation is precisely the attitude that got the United States in so much trouble in the late 1960s and 1970s. By announcing, in effect, that he was "soft" on inflation, Dr. Blinder scared the financial markets because anyone who ...

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