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ECONOMIC ENVIRONMENT - CHALLENGES OF THE 1970S - Coggle Diagram
ECONOMIC ENVIRONMENT - CHALLENGES OF THE 1970S
STAGFLATION
Wages stopped rising
Inflation kept increasing.
Prices were rising
Rising unemployment
Those on a fixed income, found that their money could buy less and less.
WHY STAGFLATION?
USA's share of world exports:
1953: 29%
1963: 17%
1973: 13%
Business taxes were rising.
Costs of raw materials rose with inflation, so businesses had less to invest in improving technology
Falling productivity - falling businesses = rise in unemployment.
GOVT ACTION
Govt couldn't cope with the economic problems of the 1970s.
Federal spending was very high.
The end of the war in Vietnam saved money, but returning soldiers added to the unemployed and drain on social/medical benefits.
When the govt tried to control the economy, it was very weary of the public reaction.
Many more people were either falling deeper into debt or cutting back on their standards of living to cope with inflation.
Some people failed to cope with credit payments, their homes were repossessed and they became reliant on govt welfare.
ENERGY PROBLEMS
Two fuel crises, which brought fuel shortages, speed limits, and fuel rationing.
OPEC (organisation of petrol exporting countries) put up prices by 70%, and then embargoed oil exports to the USA.
Jan 1974: world oil prices 4x higher than before the crisis. Fuel prices never returned to earlier levels.
Huge impact on car-dependent Americans.
The fuel crises led lots of people to change their car-buying habits, changing from big American cars to smaller Japanese cars that used less fuel.
The two crises created high levels of discontent with the govt. The public felt that the govt had made the 1979 shortage worse.
1979 - another fuel shortage.
People began to feel that the govt was failing to deal with the economic crises, and even make matters worse.
THE CONFIDENCE CRISIS
Soaring fuel prices meant rising inflation.
Unemployment levels rose from 5.8% of the workforce in 1978 to 7% in 1979.
People and businesses were scared to spend.
Carter - had a history of failing to cope with the economy, so Americans didn't have much confidence that the measures Carter proposed would work.