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IAI Actuarial Core Principles · Business Economics · Recent macroeconomic history

The term 'Great Moderation' is most commonly used by economists to describe which feature of the period from the mid-1980s to 2007 in many advanced economies?

The Great Moderation describes a long period, from the mid-1980s to about 2007, when the volatility of output growth and inflation fell markedly in many advanced economies. It does not imply higher trend growth, the end of financial crises or any return to a gold standard.

  1. AA sustained fall in the volatility of output growth and inflationCorrect
  2. BA permanent rise in trend growth to above 6% a year
  3. CThe complete disappearance of banking crises worldwide
  4. DA fixed exchange rate system linking major currencies to gold
  5. A steady rise in inflation accompanied by falling unemployment

Explanation

The Great Moderation refers to the marked reduction in the volatility of GDP growth and inflation from the mid-1980s until the financial crisis. It did not mean higher trend growth or an end to crises, and gold-linked currencies belong to an earlier era.

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