The rise in unemployment rates and the slowdown in growth rates of GNP and per capita incomes throughout the capitalist world begi珈fling in the early l970s is clearly a case where demand and supply did not grow at similar rates．Many economists turned their attention to developing theories to explain this prolonged period of stagnation．A con3／non theme in much of their work was the adverse effects of high unemployment and low utilization of the capital stock on investment and，therefore，on productivity growth．
The high unemployment rates for labour and capital are initially traced to policies restricting aggregate demand that were pursued by monetary and fiscal authorities from the first half of the l970s． This policy response was widely interpreted by economists as an effort by the authorities to reduce inflation rates that had begun to accelerate in the latter l 960s．The continued use of restrictive policies is then related to fear on the part of the authorities that any attempt to restimulate their economies would merely bring back inflation．examda.examda.examda.
Tighter labour markets resulting from any such stimulative policies are seen to increase the bargaining power of labour。thereby leading to larger wage demands and settlements that in turn feed into prices，causing price inflation to accelerate．①This leads to yet higher wage demands in order to protect real wages and thus an explosive wage-price spiral．In addition，more stimulative aggregate demand policies are perceived to result in balance of payments difficulties at existing exchange rates．But any attempt to avoid larger payments deficits by reducing the exchange rate leads to the“importation”of inflation through higher prices of imported goods．The result of such considerations is reluctance of the authorities to attempt to create full employment through stimulative policies．
What emerges from these theories is a chain of causation that describes the way in which．in the period since World War Il，inflation and growth have become causally connected through the responses of governments to actual and anticipated inflationary pressures．Inflation and the fear of inflation lead to slow growth and high unemployment because the inability of governments to bring inflation under control at full employment by other means--e．g．，an income policy--constrains governments tO implement restrictive policies to combat or forestall inflationary pressures．o Such responses lead，as they did in the early l970s，not only to high rates of unemployment of capital and labour but also to low rates of investment and productivity growth．Stagnation is the result，and such a scenario is a likely prospect for capitalism in the future．[425 words]
1．Many economists believed that______．
A．the economic slack was beyond explanation
B．the stagnation since the early l970s was normal
C．the long period of stagnation could be accounted for
D．the stagnation was nothing more than a common theme
2．Monetary and fiscal authorities______.
A．feared that more stimulative aggregate demand policies would lead to inflation
B．generally pursue more stimulative aggregate demand policies
C．thought that more stimulative aggregate demand policies would reduce inflation rates examda.examda.examda.
D．were usually reluctant to resort to restrictive policies
3．According to this passage,______．
A．demand and supply usually grow at similar rates
B．governments never use restrictive policies to forestall inflation
C．governments tend to use restrictive policies to guard against inflation
D．slow economic growth and high unemployment rates may lead to inflation
4．It seemed that______．
A．the restrictive policies have more advantages than stimulative ones
B．the stimulative policies usually lead to tighter market
C．the restrictive policies tend to result in inflation
D．the stimulative policies are likely to cause inflation
5．The proper title for this passage should be______．
A．The Fear of Inflation
B．Economic Stagnation
C．Restrictive Economic Policies
D．Stimulative Economic Policies
The high unemployment rates for labour and capital are initially traced to policies restricting aggregate demand that were pursued by monetary and fiscal authorities from the first half of the l970s． This policy response was widely interpreted by economists as an effort by the authorities to reduce inflation rates that had begun to accelerate in the latter l 960s．The continued use of restrictive policies is then related to fear on the part of the authorities that any attempt to restimulate their economies would merely bring back inflation．examda.examda.examda.
Tighter labour markets resulting from any such stimulative policies are seen to increase the bargaining power of labour。thereby leading to larger wage demands and settlements that in turn feed into prices，causing price inflation to accelerate．①This leads to yet higher wage demands in order to protect real wages and thus an explosive wage-price spiral．In addition，more stimulative aggregate demand policies are perceived to result in balance of payments difficulties at existing exchange rates．But any attempt to avoid larger payments deficits by reducing the exchange rate leads to the“importation”of inflation through higher prices of imported goods．The result of such considerations is reluctance of the authorities to attempt to create full employment through stimulative policies．
What emerges from these theories is a chain of causation that describes the way in which．in the period since World War Il，inflation and growth have become causally connected through the responses of governments to actual and anticipated inflationary pressures．Inflation and the fear of inflation lead to slow growth and high unemployment because the inability of governments to bring inflation under control at full employment by other means--e．g．，an income policy--constrains governments tO implement restrictive policies to combat or forestall inflationary pressures．o Such responses lead，as they did in the early l970s，not only to high rates of unemployment of capital and labour but also to low rates of investment and productivity growth．Stagnation is the result，and such a scenario is a likely prospect for capitalism in the future．[425 words]
1．Many economists believed that______．
A．the economic slack was beyond explanation
B．the stagnation since the early l970s was normal
C．the long period of stagnation could be accounted for
D．the stagnation was nothing more than a common theme
2．Monetary and fiscal authorities______.
A．feared that more stimulative aggregate demand policies would lead to inflation
B．generally pursue more stimulative aggregate demand policies
C．thought that more stimulative aggregate demand policies would reduce inflation rates examda.examda.examda.
D．were usually reluctant to resort to restrictive policies
3．According to this passage,______．
A．demand and supply usually grow at similar rates
B．governments never use restrictive policies to forestall inflation
C．governments tend to use restrictive policies to guard against inflation
D．slow economic growth and high unemployment rates may lead to inflation
4．It seemed that______．
A．the restrictive policies have more advantages than stimulative ones
B．the stimulative policies usually lead to tighter market
C．the restrictive policies tend to result in inflation
D．the stimulative policies are likely to cause inflation
5．The proper title for this passage should be______．
A．The Fear of Inflation
B．Economic Stagnation
C．Restrictive Economic Policies
D．Stimulative Economic Policies