In the 1970s, one of the causes of stagflation was _____
A) adverse supply shocks that shifted the aggregate supply curve left.
B) adverse supply shocks that shifted the aggregate supply curve right.
C) beneficial supply shocks that shifted the aggregate supply curve left.
D) beneficial supply shocks that shifted the aggregate demand curve right.
E) coordination failure.

Question

Quizplus · Accepted Answer

Stagflation in the 1970s was caused by adverse supply shocks, such as the oil embargo and price increases, which shifted the aggregate supply curve leftward, decreasing output and increasing prices. This led to the unique combination of high inflation and high unemployment, which are usually inversely related in traditional economic theory.

In the 1970s, One of the Causes of Stagflation Was