In the 1970s, high oil prices drove up producer costs, leading to both inflation
ID: 1206971 • Letter: I
Question
In the 1970s, high oil prices drove up producer costs, leading to both inflation and high unemployment. The following diagram shows the aggregate demand (AD) and aggregate supply (AS) curves for the United States before the inflationary period. Shift one of the curves to illustrate the primary cause of the inflation described in the preceding paragraph. Tool tip: Click and drag one of the curves. Curves will snap into position, so if you try to move the curve and it snaps back to its original position, just try again and drag it a little farther. This kind of inflation is called_ Inflation. Inflation of this type is accompanied t_in aggregate output.Explanation / Answer
This kind of inflation is called cost push inflation. Inflation of this type is accompanied by fall in aggregate output.
cost push inflation : is due to rise in cost of production which results in lower output and higher prices i.e. shifting supply curve to its left.