The Recession of 1973-1975

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The recession of 1973 through 1975, was due to the Organization of Petroleum Exporting Countries (OPEC) who rose gas prices and imposed an embargo against the United States. This quickly caused oil production to be cut dramatically, leaving no choice but to increase the price in oil. This recession, I am going to pin point the causes, fiscal and monetary policy the government uses to help the economy slowly come out from the recession. Also I am going to pin point the recession’s recovery and expansion.
The causes of this recession was due to the unemployment being too high and how it had rose even higher through the years. The unemployment rate was at 4.9% by the fourth quarter and rose significantly at 8.3% by the fourth quarter of 1975. This recession was quite severe since World War II. There has to be a cause of why the unemployment rate was continuing to rise and the reason for this recession, was the decline in the investment purchases. The GDP continued to fall because of the decline in investment.

This model shows the decrease in investment purchases, decreased the aggregate demand, showing the GDP to also decrease as well. “The decreases in investment purchases was in all components of investment spending; producer equipment, producers structures, residential structures and the changes in business inventories.” (The U.S. Recession of 1973-75).The oil price increases from the OPEC, causing a decrease shift to the aggregate supply because oil is a component on the supply side. Below is an AD/AS model to show the shift in aggregate supply from the cause of increase in the oil price. This graph shows by the change in aggregate supply, it caused an increase in price level and a decrease in GDP.

Cutting back on inves...

... middle of paper ...

..., the economists can now go off of knowing when home prices are down, banks tightening lending standards, and a “debt retrenchment” underway, they know the recovery could have a chance of taking a long time.

Works Cited
"The Economic Policy Institute." Economic Policy Institute. N.p., n.d. Web. 09 Dec. 2013.
"Expansionary Monetary Policy vs. Contractionary Monetary Policy." About.com Economics. N.p., n.d. Web. 07 Dec. 2013.
"Get To Work." Get To Work. N.p., n.d. Web. 09 Dec. 2013.
"Oil Embargo, 1973–1974 - 1969–1976 - Milestones - Office of the Historian." Oil Embargo, 1973–1974 - 1969–1976 - Milestones - Office of the Historian. N.p., n.d. Web. 08 Dec. 2013.
"A Recovery No Better than the Recession." Pew Social Demographic Trends RSS. N.p., n.d. Web. 09 Dec. 2013.
"The U.S. Recession of 1973-75." The U.S. Recession of 1973-75. N.p., n.d. Web. 08 Dec. 2013.

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