What's Fueling The U.S. Boom?

The U.S. economic boom in 1994 is something of a puzzle. On the fiscal side, the economy has been buffeted by the largest marginal income-tax hike to come along since the 1960s and by a sharp slowdown in federal spending. On the monetary side, it has experienced a rise of 250 basis points in interest rates, a shrinkage in bank reserves, and a decline in the growth rate of the M2 money supply, to less than 1%. Yet it has managed to grow a heady 4.4% in the past year.

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