MANY ECONOMISTS would agree that the two greatest macroeconomic puzzles of the twentieth century are the persistence of unemployment in the United States in the 1930s and in Europe in the 1980s. High unemployment in 1939 America was cured by a sharp expansion in aggregate demand, with a notable absence of supply bottlenecks. Although there are significant differences in the situations faced by America in 1939 and Europe today, the similarities are striking enough to warrant asking whether European unemployment could also melt away in response to an expansion in aggregate demand.
