The hypothesis that only the unanticipated part of the policy instruments and their lagged values affect unemployment, while the anticipated part affects the inflation rate, is tested for the U.S. postwar period. Nominal GNP is used as a proxy for the policy instruments. The hypothesis receives strong support from some empirical tests. The results explain the breakdown of nominal income changes into prices and output and bring out the "trickery" aspect of nominal demand management.

The hypothesis that only the unanticipated part of the policy instruments and their lagged values affect unemployment, while the anticipated part affects the inflation rate, is tested for the U.S. postwar period. Nominal GNP is used as a proxy for the policy instruments. The hypothesis receives strong support from some empirical tests. The results explain the breakdown of nominal income changes into prices and output and bring out the "trickery" aspect of nominal demand management.