The correlation between the rate of inflation and interest rates was relatively high for the 1970s but the correlation between inflation and interest rates was even higher in the U.S. during the 1960s, according to the textbook.

Question

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During the 1970s, the correlation between inflation and interest rates was higher due to the period of stagflation, where high inflation was coupled with high unemployment and stagnant demand. The 1960s experienced lower inflation rates and thus a different, often lower, correlation between inflation and interest rates.

The Correlation Between the Rate of Inflation and Interest Rates