Which of the following contributed to high levels of inflation in the 1970s?
i. Oil price shocks
ii. Lower taxes
iii. A productivity slowdown
A) i only
B) ii only
C) iii only
D) i and iii
E) ii and iii

Question

Quizplus · Accepted Answer

In the 1970s, there were two major oil price shocks, which led to a rise in the cost of production and a decrease in aggregate supply. This resulted in higher prices for goods and services, causing inflation (i). Additionally, there was a productivity slowdown, which meant that the economy was producing less output per unit of input, leading to higher prices (iii). Lower taxes (ii) may have contributed to inflation by increasing aggregate demand, but it is not as significant a factor as the other two options. Therefore, the correct answer is D (i and iii).

Which of the Following Contributed to High Levels of Inflation