GWD-24 Q10 TO 12 
   Is it possible to decrease
inflation without causing a reces-
sion and its concomitant increase
line in unemployment? The orthodox
(5)  answer is “no.” whether they
    support the “inertia” theory of 
    inflation (that today’s inflation rate
    is caused by yesterday’s infla-
    tion, the state of the economic
(10) cycle, and external influences
such as import prices) or the 
“rational expectations” theory
(that inflation is caused by
workers’ and employers’ expec-
(15) tations, coupled with a lack of
credible monetary and fiscal
policies), most economists
agree that tight monetary and
fiscal policies, which cause
(20) recessions, are necessary to
   decelerate inflation. They point
   out that in the 1980’s, many
   European countries and the
   United States conquered high
(25) (by these countries’ standards)
inflation, but only by applying tight
monetary and fiscal policies that
sharply increased unemployment.
Nevertheless, some govern-
(30) ments’ policymakers insist that
direct controls on wages and
prices, without tight monetary and
fiscal policies, can succeed in
decreasing inflation. Unfortu-
(35) nately, because this approach
fails to deal with the underlying
causes of inflation, wage and
price controls eventually col-
lapse, the hitherto-repressed
(40) inflation resurfaces, and in the
meantime, though the policy-
makers succeed in avoiding a
recession, a frozen structure of
relative prices imposes distor-
(45) tions that do damage to the
economy’s prospects for long-
term growth.