How Did President Kennedy's Council Of Economic Advisors Believe They Faced

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1. What trade-off between inflation and unemployment did President Kennedy’s Council of Economic Advisors believe they faced? During the six years from 1958 through 1963, the unemployment rate averaged almost 6%. Prior to this ten years before it had been 2%. Kennedy’s Council of Economic Advisors proposed a policy designed to stimulate the economy and bring the unemployment rate down to 4%. At this time, it was believed that 4% was a consistent measure with “full employment.” The policy called for a major tax cut. Those who opposed the cut argued that it would be fiscally irresponsible and could lead to a deficit, with the government spending more than it received in taxes. They contended that inflation would rise and the cost of lower unemployment …show more content…

The unemployment rate fell below 4%, reaching as low as 3.5% by 1969. Unfortunately, this fall in unemployment was accomplished by raising inflation; the general level of prices in the United States rose by only 1% in 1963 but by 1969 prices were rising at an annual rate of 6.2%. To some extent, policy makers at the time thought that higher inflation was simply the price they had to pay to maintain lower unemployment. They saw this as a trade-off: lower unemployment required accepting higher inflation. People believed that inflation could always be reduced again, by letting the average unemployment return to the levels of the late 1950’s and early …show more content…

Why might there be a trade-off between equity and efficiency? Competitive markets represents an accurate market best, in that it has a strong implication that the market/economy will be efficient. Resources are scarce, and they will not be wasted. It is not possible to produce more quantity of one good without producing less of another, and therefore it is not possible to make any person better off without making someone else worse off. These results above suggest an absence of any government activity. Competitive markets determine the distribution of goods. Mainly who decides how much of the goods are available and how they should be distributed. For example, a person with high levels of competition for the services of an individual with a rare and valuable skill will result in a very high income for that individual. On the other hand, competition among suppliers of unskilled labor may result in these workers earning very low wages, so low that even long workdays fail to win them a decent standard of living. A prime example of this is sweatshops. This inequality raised above questions the fairness of competitive distribution. Although efficiency is a desirable property of any economic system, fairness is a separate issue that must be considered and together, both are not always

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