How did the U.S. economy end up suffering both from inflation and high unemployment? 

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mkoren eNotes educator| Certified Educator

In the 1970s, the United States experienced something economically that had never happened in our country. We had both high unemployment and high inflation at the same. We had strategies to deal with each issue individually, but no strategies to deal with both of these events occurring at the same time. This concept, known as stagflation, was something with which we had not dealt with in the past.

In the 1970s, world events caused a disruption of the supply of oil to the United States. In the mid-1970s, the Arab countries that exported oil cut its sale of oil to the United States because of our support of Israel in its war with Egypt in 1973. This caused oil prices to rise. As a result, the price of gasoline doubled, as did the price of petroleum-based products. This caused inflation to occur. As a result of the increased inflation, demand for products dropped. This led to layoffs, resulting in higher unemployment. The situation worsened in 1979 as a result of the Iranian Revolution. All diplomatic relations ended with Iran. Oil supplies were reduced again. This led to higher oil prices, inflation, and increased unemployment.

Our government tried to attack one of the causes of stagflation. However, in doing this, it made the other cause worse. Thus, trying to lower inflation, led to higher unemployment and vice versa. Both President Ford and President Carter were unable to solve these economic problems and this failure played a role in their subsequent electoral defeat.