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How Did The Kipur War Affect The Economy In The 1970's

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Since the early 1970s, and until today, macroeconomists have regarded fluctuations in the price of oil as a significant source of economic activity, as well as an archetype of a global shock, likely to affect many economies at the same time. This widely held perception is predominantly due to the two periods of high unemployment, low growth, and high inflation that typified most industrialized economies in the 1970s. Common accounts of those periods of stagflation blame them on the immense increases in the price of oil brought about by the Yom Kippur War in 1973, and the Iranian Revolution in 1979, respectively (1,2). Understanding the extensive impacts oil shocks have on the world economy allows for the examination of the various macroeconomic responses by the United States. Up until the 1970s, industries …show more content…

He warned Americans that the country was wasting too much energy, and their supplies were being depleted, which meant they were subject to OPEC’s ability to create oil embargoes. Carter campaigned for a long term solution to the energy problem, by proposing limits on oil that was imported, deregulating domestic oil prices, development of alternate energy sources, and rigorous conservation programs.
Consequences of 1979 Oil Shock Following the oil shock, the United States entered another period of stagflation where inflation reached into the double digits, yet productivity and GNP remained relatively normal. Paul Volcker was appointed as the Chairman of the Federal Reserve, and focused on fighting the inflation rate with strong monetary policy. First of which he did by increasing the federal funds
LM2 rate, but this had a negative effect sending in interest rates, but not before 1.3 million jobs were lost, causing unemployment to reach a peak of 7.8%

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