ECONOMIC

outside the food and fuel sectors and get the benefit of a much lowerrate of further price increase in these two sectors. There would be anexpectation that a significant reduction of price increases in food andfuel would be followed in time by a reduction elsewhere if the economicenvironment is not overheated. This would be accompanied by a gradualdecline of the unemployment rate.The third possible path is most consistent with attaining as well as maintainingthe goals of the Employment Act. The first is a prescription forundiminished and probably accelerating inflation. The second exacts toohigh a price in unemployment.Of course, no one knows with certainty or precision the relations amongoutput, unemployment, and prices along any of these paths. They onlyreflect general emphases which can be utilized as guides to policy. Moreover,even if the desired path could be precisely described, no one couldprecisely describe the policy that would achieve it. All of these usual uncertaintiesare heightened this year by the difficulty of foreseeing the effectsof the radical change in the energy situation. This unusual degree of uncertaintymakes it more important than ever that we be prepared withmeans for adapting policy if events seem to be moving outside a reasonablerange of the roughly defined target path.What is implied by the path that at present seems to us the best of thefeasible ones for the economy, given the inescapable effects of the energyshortage, is an increase of about 8 percent in the nominal value of GNPfrom calendar 1973 to 1974, to about $1,390 billion. Of this rise, about 1percent would be an increase in real output and about 7 percent an increaseof prices (as measured by the GNP deflator). Changes from calendar1973 to 1974 are, of course, significantly influenced by what has alreadyhappened in 1973; and hence changes so expressed do not describe an expectedpath for 1974, though they are implied in any expected path. Asfor the expected path during 1974, this would leave real output approximatelyflat, and perhaps declining for an interval, in the first half of the yearbut would bring a rise by somewhat more than the normal trend rate inthe second half. Inflation would be rapid in the early part of the year, mainlyas a consequence of energy and food prices, and then subside to rates significantlybelow those experienced in 1973. Unemployment for the yearwould average a little above 5J/2 percent.We would emphasize two aspects of this path. First, it is at the sametime our view of a feasible target and a prediction of what will be achievedif the planned policy is carried through. Second, that the path is feasibleand that it will be achieved by the planned policy are both uncertain to asignificant degree. This means that the target or the policy may have to bechanged as new information emerges, although changes involve costs andshould not be made unless the case for them is clear.A description of the implications of this path for the main sectors ofthe economy appears at the end of this chapter.28