What are the reasons for inflation and economic stagnation occuring together in the United States during the 1970s?
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I would say that the oil shortages were a major contributor to the inflation of the 1970's. As mentioned above this caused price increases in all goods. Also the Federal Reserve, at that time did nothing to help curb inflation.
There are quite a few reasons for the stagflation of the 1970s. I will look at two of them.
First, the fiscal policy of this time was really quite inflationary. There was a lot of spending on the Vietnam War (early in the 1970s) and on all the programs that Pres. Johnson had created as part of his War on Poverty or Great Society initiative. This excessive government spending helped cause inflation.
Second, there were two supply shocks in this decade. Both of these came in the form of oil shortages. When there was less oil to be had, prices for all goods and services went up as it became harder and more expensive to produce things.
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