Until we can come up with a more reliable index, we cannot tell whether economic welfare is progressing or regressing. Classify each of the following statements as positive or normative. Society faces a short-run tradeoff between inflation and unemployment. A reduction in the rate of growth of money will reduce the rate of inflation. The Federal Reserve should reduce the rate of growth of money.
Society ought to require welfare recipients to look for jobs.
Lower tax rates encourage more work and more saving. From 1947 to 1997 the consumer price index in the US rose 637 percent. Use this fact to adjust each of the following 1947 prices for the effects of inflation. Chapter 11 in Mankiw defines the real interest rate as the nominal interest rate less inflation. Because the US tax code taxes nominal interest income, we can define the after-tax interest rate as the nominal interest rate after taxes, less inf lation.