In 1972, the rate of inflation, as measured by CPI, was 3.4% but in 1974, it increased to about 12.2%. The main contributors to this rapid increase are several, but food prices and energy costs were the main culprits. . (Blinder, 1982) As stated before, food costs rose dramatically due to weather in 1972, which it affects were later felt in the form inflation in the next year. This inflationary effect from 1972-1973 was a 20% increase. (Blinder, 1982) The author Alan Blinder suggests that inflation caused by increases on food, also added to increases in wages too, which is also a driver of inflation. (Blinder, …show more content…
The labor force does not include people who voluntarily or involuntarily (prisoners) seeking employment. (Hubbard & O 'brien, 2015) As seen in the Civilian Unemployment Rate chart, unemployment lags rises and drops in GDP. This would make sense since businesses tend to make decision about the future based on the present or the past. With a few bad quarters, a business would project the future sales, etc. and adjust their labor force accordingly.
During the 1970s, unemployment rose sharply toward the end of 1973, rising to over 9% mid 1975. The increase in the rate of unemployment appears to lag GDP decreases. Two possible causes for the rather sharp increase have be attributed to decreases in the constructions of homes, with new home construction dropping from about 2.4 million in 1972, to less than 1 million in 1974. “The other was speculative buying and hoarding by businesses, which resulted in an enormous inventory buildup.” (Brandt & Haulk, 1980). Liquidation of these large inventories resulted in layoffs. (Brandt & Haulk, 1980)
In addition, with rising interest rates, consumers tend to save instead of spend. In addition, since many durable goods they would normally purchase via credit, purchases would not be cost effective. . (Hubbard & O 'brien, 2015) The economy would slow down, resulting in workers being made