Research two periods in history, one where the United States experienced an incr
ID: 1107076 • Letter: R
Question
Research two periods in history, one where the United States experienced an increase in inflation and the other an increase in unemployment. Use the aggregate demand and supply models to analyze the causes and why they led to the inflation and/or unemployment. Research two periods in history, one where the United States experienced an increase in inflation and the other an increase in unemployment. Use the aggregate demand and supply models to analyze the causes and why they led to the inflation and/or unemployment.Explanation / Answer
The period of 1970s when stock market crashed, inflation rate increased and reached peak. Economists blame increasing oil prices responsible for high inflation in 1970s. Economic growth fell which led to unemployment as well.
In October 2009, the unemployment rate in US increased . It increased to 10% in october 2009. Many workers lost their job. The fall in ouput has had adverse effects on the population.
The causes of unemployment and inflation are many and debatable issue. Through demand and supply model we can anylise different causes. When cost of production increases which can be in any form, whether increase in oil price which is an input for many industries or increase in prices of factors of production, supply decreases and this happens there is excess demand which is overcome in the form of higher prices and decrease in output. Decrease in output also leads increase in unemployment.
Inflation can also result when demand for the goods increase and there is no change in supply then producers sell the goods at higher prices. In this case yes inflation occurs but unemployment decrease as output increases due to increase in price.
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