In the late 1970's, Paul Volcker slowed the rate of growth of the money supply and raised interest rates in a disinflationary scenario. Read more about paul volcker's disinflation in the Boundless open textbook.
Rational expectations is a hypothesis in economics which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. Equivalently, this is to say that agents' expectations equal true statistical expected values.
Friedman concluded that inflation is not related to the rate of unemployment in the long run, implying that the long run Phillips Curve is vertical. Read more about the phillips curve in the long run in the Boundless open textbook.
In 1974, the Organization of Petroleum Exporting Countries (OPEC) began to exert its market power as a cartel in the world oil market to increase its members’ profits. The countries of OPEC, such as Saudi Arabia, Kuwait, and Iraq, restricted the amount of crude oil they pumped and sold on world markets. Within a few years, this reduction in supply caused the world price of oil to almost double.
"The natural rate of unemployment represents the rate of unemployment to which the economy naturally gravitates in the long run. The natural rate of unemployment is determined by looking at the rate people are finding jobs, compared with the rate of job separation."
In 1987, Alan Greenspan was nominated and confirmed by the Senate as Chairman of the Board of Governors of the Federal Reserve. Read more about a new era: alan greenspan in the Boundless open textbook.
OPEC (Organization of the Petroleum Exporting Countries) placed an embargo in 1973 on countries that supported Israel during the Arab-Israeli War. This included the United States. When the embargo was lifted in 1974 the price of a barrel increased from $2 to $12. Inflation in the U.S. jumped 10% and the Dow Jones dropped 45%.
A supply shock associated with the epidemic of mountain pine beetles is one of three factors which will drive a surge in timber prices throughout Canada and the United States in 2013 and beyond, a new report predicts.
In its latest edition of Timber Trends, The Campbell Group LLC described 2013 as the “beginning of a long term bullish trend for the timber industry.”
While this is welcome news for timber manufacturers and investors, it is not so good for builders in Canada as it will add to material costs at a time of an anticipated slowdown in housing construction.
“Do you remember when you were a kid and your parents told you that money didn’t grow on trees?” forest economist and report author Bruce P. Glass asked, referring to the prospects of forestry as an asset for investment.
“Unfortunately for you, what your parents told you was only partially true. Sure, dollar bills don’t grow on trees. But the trees themselves are worth big bucks.”
The report quotes Grantham Mayo van Otterloo (GMO) chief investment strategist Jeremy Grantham as saying that timber prices would rise by as much as 6.5 per cent over seven years.
Glass says prices could go even higher, and that three factors lie behind these expectations:
First and foremost is the mountain pine beetle bug epidemic...Combined with an increase in demand from China...Add that to demand pressures associated with a likely recovery in US housing construction...
Via Sam Radcliffe
ENC Team 6's insight:
A "supply shock" is an event that directly affects firms’ costs of production and thus the prices they charge; it shifts the economy’s aggregate-supply curve and, as a result, the Phillips curve. For example, when an oil price increase raises the cost of producing gasoline, heating oil, tires, and many other products, it reduces the quantity of goods and services supplied at any given price level.
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