Inflation doesnt necessarily means that prices for all products and services increase, some prices may stay stabile and others can decrease. In 1970-1980, the level of inflation was high, but the prices for tape recorders, video players, and personal computers actually declined. One of the main problems connected with inflation is that rises and declines of the prices on different products are disproportional. Inflation is figured out with a help of price index. Another way to figure out the number of years, in which the prices will double, is so called the rule of 70. We just need to divide the number 70 by the rate of annual price level increase.
During the last years total private employment increased by about 20 percent. But during this period employment declined in industries that in 1980 had accounted for 26 percent of total private employment. (These calculations are based on a division of employment among sixty-five industries. ) Employment declined by 45 percent in railroad transportation, for example, by 43 percent in metal mining, and by 42 percent in coal mining. In contrast, employment in the provision of business services rose by 106 percent and in security and commodity brokerage by 90 percent. Still, a large proportion of all employment was in industries that had about the average increases.
Three main factors explain the differences in the variations in employment among industries changes in the pattern of demand, differences in productivity growth, and differences in the impact of foreign trade. The far above average increases in employment in service industries contrasted with below average or declining employment in manufacturing, reflecting both demand shifts and relatively rapid growth of productivity in manufacturing. The clearest sign of the impact of foreign competition is the 13 percent decline of employment in the apparel industry. Employment in agriculture in the United States was 8 percent of civilian employment in 1960 and only 3 percent in 1989, the number keeps shrinking to this day. Declining farm employment in this country was a part of the worldwide phenomenon. The decline in agricultural share of employment was an important factor in the productivity rise in Western Europe, Canada, and Japan.
In most of these countries agricultural employment is now so low that this source of productivity increase is largely spent. What is the most striking thing about this picture is the clear ability of the economy to adapt to great changes in demand, productivity, and foreign competition, affecting industries very differently, and still to maintain high employment growth and relatively little unemployment. Controlling the money supply is the responsibility of a government agency, the Federal Reserve, which has an unusual degree of independence. The money supply consists partly of currency and checkable bank deposits. The currency is issued by the Federal Reserve and is a liability of the Fed.
Most of the checkable bank deposits are liabilities of banks that are members at the Federal Reserve System. These banks are required to hold reserves equal to a certain proportion of their checkable deposits in the form of deposits at the Federal Reserve, which are also liabilities of the Fed. These two kinds of fed liabilities, currency and deposits of member banks with the Fed, are called the monetary base. They constitute almost all of the Fed. s total liabilities. By controlling its liabilities, the Fed can control the sum of the currency and checkable deposits fairly closely, although not exactly.
The Fed controls its liabilities by controlling its assets, which consists largely of government securities and loans to banks. If the Fed buys more securities or makes more loans to banks, it increases the monetary base and tends to increase the total of currency and checkable deposits; the opposite results follow if it sells more securities or makes fewer loans.