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The economic recession in the 1970s was heralded due to loose domestic spending and the funding provided for the Vietnam War. In addition, the oil crisis in 1973 and 1979 did nothing to make the recession any better. Due to high oil prices, most American businesses were compelled to increase their prices and this led to further inflation.
According to statistics, the average annual inflation rate from 1900 to 1970 was approximately 2.5 percent. However, from 1970, the average annual inflation rate jumped to 6 percent and it reached its peak in 1979 when the rate touched 13.3 percent. This period is known as stagflation, where inflation and unemployment increased steadily. By 1980, inflation was a whopping 21.5 percent.
The term stagflation was coined during the economic recession in the 70s. It described an economic condition of continuing inflation along with stagnant business activity which led to increasing unemployment.
During the 70s, because of inflation people expected prices of goods to rise so they started, so they started buying in bulk. This in turn led to an increased demand and automatically pushed the prices up. The 70s was a period when inflation seemed to feed on itself.
It was during this period that the government needed funds to pay for the Vietnam War so it kept borrowing, which in turn increased the budget deficit. This resulted in interest rates being increased which further led to increase in costs for businesses and consumers alike. High energy costs coupled with high interest rates led to high unemployment.
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