The stagflation in the United States during the 1974-1975 period can be attributed to
A)increases in real GDP due to high levels of defense spending.
B)tight monetary and fiscal policies of the Nixon-Ford administrations.
C)rapid increases in petroleum prices, poor harvests, and the removal of wage and price controls.
D)budget deficits by the federal government and increasing trade deficits by the United States.

Question

Quizplus · Accepted Answer

The rapid increases in petroleum prices, poor harvests, and the removal of wage and price controls were the primary causes of stagflation during the 1974-1975 period. The increase in petroleum prices caused inflation, which was worsened by the poor harvests, and the removal of wage and price controls allowed firms to increase prices even further. This resulted in high inflation and high unemployment, which is the unique characteristic of stagflation. Increases in real GDP due to high levels of defense spending (choice A) would typically lead to economic growth, not stagflation. Tight monetary and fiscal policies of the Nixon-Ford administrations (choice B) may have contributed to stagflation, but they were not the primary cause. Budget deficits by the federal government and increasing trade deficits by the United States (choice D) may also have contributed, but they were not the primary cause.

The Stagflation in the United States During the 1974-1975 Period