The nineteenth-century historian Thomas Carlyle once suggested that economics was simply a matter of supply and demand. Although this may be true, determining whether economic changes reflect supply or demand is no simple matter. The distinction is crucial, however, because demand pressures raise output and lift prices, whereas supply pressures raise output and lower prices. The fact that recent strength in actual (and projected) output growth was not accompanied by accelerating inflation suggests that supply effects may be especially important. The difficulty, of course, lies in assessing their future strength and contribution to growth.
Suggested citation: “Economic Activity,” Federal Reserve Bank of Cleveland, Economic Trends, no. 97-04, pp. 10-11, 04.01.1997.