Question: The new economy of the late 1990s: Between 1995 and 2000, the U.S. economy experienced surprisingly rapid growth, termed the "new economy" by some observers. Was this a change in potential output or short-run output? Alan Greenspan, Fed chairman, argued it was a change in potential and did not raise interest rates to slow the economy. At the time, many economists thought this was a mistake. Look back at the data on inflation in Figure to form your own opinion. Write a brief memo (one page or less) either defending or criticizing Greenspan's position. Be sure to use the graphs of the short-run model to make your case.
