Stagflation is the term used to describe the economic malaise experienced in the US during the late 1970s. It stands for stagnant inflation. According to classical economic theories, the economy goes through cycles of moderate inflation and low unemployment, followed by periods of moderate unemployment and low inflation.

What happened during the 1970s to cause both high unemployment and high inflation at the same time was an upward shift of the aggregate supply curve due to OPEC's massive increases in the price of oil. Our economy is far too reliant on the price of oil. When it suddenly increased, this forced manufacturing concerns to layoff personnel as a cost-saving measure. Unfortunately, this was not sufficient to prevent abuttment of the aggregate demand curve into the exponential phase of the aggregate supply curve, and inflation still resulted, even after maximum cost-cutting measures by businesses. Whether it was Reagan's economic policies or infighting between members of OPEC that resulted in a stabilization in the price of oil, experts will debate for decades.

Jimmy Carter is often blamed for the hard times experienced in the 1970s. Stagflation, and the inability to respond to the higher price of oil (because of our excessive demand for it) was the real culprit.

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