... economies. In 1978 inflation was 8.2 %, in 1979 it was 13.4 % and in 1980 it was 18 % 1 reinforcing why the government was placing emphasis on its reduction, above everything else, including unemployment. This also represented a major shift in economic thought, due to the discovery that the Philips curve was in fact only a short run trade off between unemployment and inflation. Instead, this belief was centred around the Friedman influenced expectations-augmented Philips curve in which the long run unemployment always reverts back to the 'natural state' and only supply side factors can shift the NRU lower. Hence there is no long run trade off between inflation and unemployment and measures to lower unemployment below the NRU will create inflationary pressures, currently experienced, and vice versa with inflation. Following this notion the Thatcher government introduced the Medium Term Financial Strategy (MTFS) based around targets for the growth ...

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