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Chapter 25: Q.16 (page 676)

Why did the oil price shocks of the 1970s affect the economy differently than the oil price shocks of 2007?

Short Answer

Expert verified

Inflation and unemployment contributed to the economic shock that began in 2007. Actual inflation and unemployment were lower than in previous crises in the 1970s.

Step by step solution

01

Content Introduction

1970sThe energy crisis was a major factor in the 1 economic collapse. Oil prices rose 350 percent after the 1973 OPEC oil embargo, and the higher costs spread across the economy.

02

Content Explanation

An oil shock might potentially cause a shift in the aggregate demand curve, resulting in a fall in aggregate demand. These extra demand-side consequences lower economic activity even more while keeping inflation in check.

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