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BPEA Article

Unemployment and Output in 1974. Discussion


F. THOMAS JUSTER reasserted the possibility that real GNP could be
overdeflated during the first half of 1974, accounting for much of the apparent
mystery on unemployment. Michael Lovell reminded the group
that overdeflation had turned out to be a problem during the double-digit
inflation of the late forties. But George Jaszi doubted the existence of an
error in real GNP large enough to account for the $15 billion puzzle that
had arisen during the first half of the year. He noted that some of the apparent
discrepancy between the Federal Reserve index of industrial production
and the real GNP could reflect weak performance in nonindustrial
sectors, such as construction. Another portion might arise from inadequacies
in the production index-for example, its reliance on some shipment
data during a period of declining inventory investment, and its failure
to respond to the rising share of small cars in auto production. Jaszi agreed
that another portion undoubtedly reflected errors in real GNP, especially
in a period of rapid inflation, but he felt that those errors could be negative
as well as positive.

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