long upturn followed in the period from 1992 to 2008. national income rose by an annual 5. 4 per cent in this period, far higher than the rate of output growth in the mainland economy. income growth has been higher than in the 1950s and 1960s. behind these favourable developments were the major structural reforms of the 1980s and 1990s that resulted in higher production capacity in the norwegian economy. the norwegian business sector experienced a long period of high productivity growth. shifting forces have otherwise driven the economy – during the crisis around 1990, labour costs decreased to a low level compared with norway ’ s trading partners and wage settlements were moderate. in 1995, the cost level was 10 – 12 per cent below norway ’ s average for the oil age from 1970 to today. in addition, real interest rates in norway fell markedly through the 1990s from high levels. this was because the fixed krone exchange rate regime maintained through the crisis period managed to bring down inflation and inflation expectations. moreover, growth in public spending was rapidly reduced once business sector activity had recovered. norway experienced an economic shift in the 2000s. the cost level began to rise, although this was related to the sharp improvement in norway ’ s terms of trade at that time and a gradual pickup in growth abroad. prices for norwegian exports such as oil, gas, metals, minerals, fish and freight, rose markedly, while prices for imported goods fell. from 2003 to 2008, terms - of - trade gains alone pushed up national income by more than 20 per cent, or a good 4 per cent per year. institutions and mechanisms had also been put in place to manage the sharp increase in income. norway ’ s sovereign wealth fund, which is now called the government pension fund global, and the fiscal guidelines were established with the express purpose of preventing fluctuations in oil prices from feeding through to the mainland economy. improved terms of trade, higher revenues and increased government spending contributed to a shift in real resources towards sheltered sectors and to a stronger krone, but at the same time the fiscal rule provided a basis for growth in business sectors other than just the oil industry and the public sector through the decade. norway had a plentiful supply of labour from new eu countries and experienced several years of high output growth. at the same time, the inflation target for monetary policy provided a sound anchor for inflation expectations. in 2008 the expansionary period was drawing to a close. costs had risen sharply, credit growth had been strong, the interest rate had been raised and house prices had started

28 to 26 per cent, combined with an increase of nok 25 000 in the basic allowance. another option would be to use the revenues to remove wealth tax and the surtax on higher incomes. there would still be some room left for a reduction in the tax on ordinary income. monetary policy it costs 34 øre to produce a 50 krone note. but we expect to exchange this piece of paper for larger real values, for example a litre of milk or a loaf of bread. most of the money we spend is not paper money but online banking figures. we can exchange the electronic figures for baskets of goods from the shop. norges bank issues paper money, but is also behind – as the banks ’ bank – deposits on accounts in commercial and savings banks. the value of money tends to be taken for granted when we pay our bills, receive wages and plan trips and large purchases, draw up budgets and keep accounts. but if prices rise, money loses value. if inflation varies, the purchasing power of money becomes arbitrary. moreover, decisions based on an arbitrary value of money cannot be sound, which is why stable and low inflation is a precondition for solid growth in the economy. the profitability of an investment project can only be calculated correctly when inflation is in line with expectations. accounts tend to be misleading and equity prices uncertain if the purchasing power of money is not stable. the tax system, with its rates and thresholds in krone terms, impairs the distribution of resources to a greater extent when inflation is high and variable. the value of money and inflation have now been stable for almost 20 years. in earlier times, the value of money was more variable, and periods of high inflation tended to be followed by a fall in prices. the value of money fell sharply and permanently around the time of the two world wars and earlier wars. in the 1970s and 1980s, the value of money also fell rapidly, but as a result of economic policy. the interest rate was kept at a low level and public spending was high in an attempt to achieve very low unemployment. not only in norway, but worldwide, there was a crisis in the monetary system in the 1970s. after the second world war, the us dollar was pegged to gold while other countries held a fixed but adjustable exchange rate against the dollar. but inflation gradually became too high for the dollar to maintain its gold value and at the beginning of the 1970s the system unravelled. inflation increased and was unstable