Chapter13: Inflation
Section: Chapter Questions
Problem 6SQP
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Question
What unique factors in the 1970s era caused widespread inflation?
Expert Solution
Step 1
According to the Phillips curve , there exists an inverse relationship between inflation and unemployment.
During the 1970s, there was high oil prices, less demand and high unemployment. So the government tried to use the inverse relationship and in order to reduce unemployment, increased inflation from higher wages. The oil prices also caused high inflation.
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