Can You Explain The Macroeconomic Impacts On Efficiency And Growth?

In addition to the microeconomic and distribution impacts, are there effects of inflation on overall economic activity? Until the 1970s, high inflation usually went hand in hand with high employment and output. In the United States, inflation tended to increase when investment was brisk and jobs were plentiful. Periods of deflation or declining inflation the 1890s, the 1930s, 1954, 1958, 1982, and 1991 were times of high unemployment of labor and capital.

But a more careful examination of the historical record has revealed an interesting fact: The positive association between output and inflation appears to be only a temporary relationship. Over the longer run, there seems to be an inverse U shaped relationship between inflation and output growth.         

Whatever the short run of long run impact of inflation on output and efficiency, there is no doubt about the reaction of the Federal Reserve when inflation threatens. Whenever inflation threaten to rise, the Federal Reserve today takes forceful steps to stop inflation in its tracks by reducing money growth, raising interest rates, and thereby restraining the growth of real out put and raising unemployment.