The inflation associated with the oil embargoes of the 1970s illustrated the fallacy of the downward-sloping Phillips curve in the long run.What happened to unemployment during this period?

Question

Quizplus · Accepted Answer

Unemployment increased during the oil embargo period. The upward pressure on prices caused by the decrease in oil supply resulted in higher inflation rates, while the decrease in aggregate demand caused by the rise in oil prices contributed to higher unemployment rates. This suggests that the Phillips curve relationship between inflation and unemployment only holds in the short run and that in the long-run, there is no trade-off between the two variables.

The Inflation Associated with the Oil Embargoes of the 1970s