Why is it that oil price increases were associated with stagflation (stagnation of the economy accompanied by inflation) in the 1970s but had little apparent effect on the economy in the 200s?
While it is true that both periods experienced a oil price shocks, the state of the economy was different in each case. In 1970s there were other economic shocks such as shocks in the commodity prices that intensified the shock of oil prices and caused stagflation. In 2000s the period is described as the one with higher productivity and no such shock so that the effect of the oil shock was mitigated. This period is considered to be the one with housing boom and dot com bubble that minimized the impact of higher inflation and unemployment.
Get Answers For Free
Most questions answered within 1 hours.