The domestic economy in the United States expanded in a remarkably vigorous and steady fashion. The revival in consumer confidence was reflected in the higher proportion of incomes spent for goods and services and the marked increase in consumer willingness to take on installment debt. A parallel strengthening in business psychology was manifested in a stepped-up rate of plant and equipment spending and a gradual pickup in expenses for inventory. Confidence in the economy was also reflected in the strength of the stock market and in the stability of the bond market. For the year as a whole, consumer and business sentiment benefited from the ease in East-West tensions.
The bases of the business expansion were to be found mainly in the stimulative monetary and fiscal policies that had been pursued. Moreover, the restoration of sounder liquidity positions and tighter management control of production efficiency had also helped lay the groundwork for a p expansion. In addition, the economic policy moves made by the President had served to renew optimism on the business outlook while boosting hopes that inflation would be brought under more effective control. Finally, of course, the economy was able to grow as vigorously as it did because sufficient leeway existed in terms of idle men and machines.
The United States balance of payments deficit declined sharply. Nevertheless, by any other test, the deficit remained very large, and there was actually a substantial deterioration in our trade account to a sizable deficit, almost two-thirds of which was with Japan. While the overall trade performance proved disappointing, there are still good reasons for expecting the delayed impact of devaluation to produce in time a significant strengthening in our trade picture. Given the size of the Japanese component of our trade deficit, however, the outcome will depend importantly on the extent of the corrective measures undertaken by Japan. Also important will be our own efforts in the United States to fashion internal policies consistent with an improvement in our external balance.
The underlying task of public policy for the year ahead--and indeed for the longer run-- remained a familiar one.- to strike the right balance between encouraging healthy economic growth and avoiding inflationary pressures. With the economy showing sustained and vigorous growth, and with the currency crisis highlighting the need to improve our competitive posture internationally, the emphasis seemed to be shifting to the problem of inflation. The Phase Three program of wage and price restraint can contribute to reducing inflation. Unless productivity growth is unexpectedly large, however, the expansion of real output must eventually begin to slow down to the economy’s larger run growth potential if generalized demand pressures on prices are to be avoided.
It can be learned from the last paragraph that the Phase Three program contained（）
A.reduced government spending
B. devaluation of the dollar
C. productivity measures
D. wage and price controls
