Macroeconomics - Cycle of Macroeconomic Activity

As economic expansion compounded with evolution , the value of everyday items increases to maintain balance in the economy . A postage stamp that cost 3 cents in the 1950 's , today costs 39 cents and is still rising due to inflation . Inflation is a reality that is impossible to ignore , as it is a necessity to maintain a healthy balance in the economy . However , a relatively high or low inflation level will hurt the economy and send it into either a recession or depression . In the 1970 's inflation reached an all time high

with rates in the double digits

The 1970 's inflationary rate was a result of low oil prices that abruptly inflated as a result of regulation from OPEC . During the 1970 's in the conflict with Syria and Egypt , OPEC placed a price-setting mechanism against the Western world due to their support for Israel This caused the price of oil to quadruple . As a result it caused the United States inflation rate to hit double digits . This was detriment to the United States economy because prior to this occurring the United States enjoyed low priced oil

When OPEC placed this embargo on countries in the West , the price went over night from 3 .00 to 5 .11 , then within months had increased to over 11 .00 . This increase in oil prices also hurt the employment sector . 85 of Americans drove to their place of employment . Therefore President Nixon was forced to place restrictions on highway speed limits , gasoline sold per day , and time periods the gasoline could be sold

Oil has been and will be a continual factor effecting inflation as long as the need for oil continues to exist . Unfortunately the United States does not posses large oil field producing locations , so it has to depend on other countries for supply . As a result of the war in the Middle East in the 1970 's , affected most Western countries due their large power over oil

The demand-pull inflation in the 1970 's spiraled as a result of decreasing supply caused by the sanctions OPEC placed on the United States and other Western countries . OPEC realized the power they contained over this energy sector and utilized it to punish the West for their lack of support . As the lack of supply increased the demand continued to increased pushing the demand curve to the far left causing an imbalance in the economy with a high unemployment rate as it also resulted in a recession for the economy...