What Depressed the Consumer? The Household Balance Sheet and the 1973-75 Recession | Brookings (2024)

FAQs

What caused the recession of 1973-1975? ›

The 1970s economic crisis largely came as a result of the oil embargo imposed by Arab oil producers against the U.S. (and indirectly the OECD) for its support of Israel during the 1973 Yom Kippur War.

Probably more than in most business cycles of the past, the 1973-1974 slowdown-and-recession sequence was influenced by cost increases affecting food, fuel, and raw materials, and by supply restrictions, which tend to produce rising prices along with falling output.

Among the causes were the 1973 oil crisis, the deficits of the Vietnam War under President Johnson, and the fall of the Bretton Woods system after the Nixon shock.

Explanation: The economy actually grew in 1973 by 5.65%, but then it fell sharply, and fell byn -0.5 in 1974. The reason for this drop was the 1973 oil crisis, after several Oil-exporting Arab Nations, launched an embargo against countries that had supported Israel in the Yom Kippur War, among these, the United States.

The price of oil per barrel first doubled, then quadrupled, imposing skyrocketing costs on consumers and structural challenges to the stability of whole national economies. Since the embargo coincided with a devaluation of the dollar, a global recession seemed imminent.

Ultimately, the oil crisis of 1973 and the accompanying inflation was a result of many factors culminating in a perfect economic storm.

Answer and Explanation: In 1973, OPEC, the Oil of Petroleum Exporting Companies, made up in large part by Arab countries retaliated against the U.S. by issuing an embargo on their members to prevent the sale of oil to the United States.

In the United States, the Great Recession was a severe financial crisis combined with a deep recession. While the recession officially lasted from December 2007 to June 2009, it took many years for the economy to recover to pre-crisis levels of employment and output.

What caused a U.S. recession in 1974? The U.S. recession in 1974 was caused by the Oil Crisis.

In 1974, the FOMC focused on nonmonetary factors affecting inflation—such as government budget deficits, oil price shocks, and “excessive” price and wage increases by firms and labor unions—as opposed to monetary policy.

What happened in the 1970s that was bad? ›

The United States faced political turmoil as President Richard Nixon resigned amid the Watergate scandal, and in Chile Augusto Pinochet overthrew the democratically elected government. Also making news were the massacre at the Munich Olympics and the Iran hostage crisis.

Eventually, aggressive monetary policy tightening in the late 1970s and early 1980s sharply reduced inflation in advanced economies and established central bank credibility, although often at the cost of deep recessions (Goodfriend 2007).

At the time the recession of 1973-75 was considered a severe recession. It was the most severe since World War II. The Economic Report of the President for 1975 starts with the lines: The economy is in a severe recession.

The primary sector was the largest producing sector in 1973 because the primary sector had a 45% share in GDP because the majority of the population was involved in agriculture due to lack of economic development.

In the two years from 1972 to 1974, the American economy slowed from 7.2% real GDP growth to −2.1% contraction, while inflation (by CPI) jumped from 3.4% in 1972 to 12.3% in 1974. The Dow reached its lowest level, 577.60 points, on December 6, 1974.

THE RECESSION of 1973-75 was the most severe economic contraction in the postwar era. By the first quarter of 1975, real gross national product had declined nearly 7 percent from its 1973 peak, about twice the decline in real GNP from peak to trough in 1957-58, the most severe previous postwar recession.

The 1973 oil crisis, a quadrupling of oil prices by OPEC, coupled with the 1973–1974 stock market crash led to a stagflation recession in the United States.

The economy began to emerge from its recession in the late spring of 1975. An upturn in the gross national product and industrial production was evident in the summer months and early fall. Inflation began to OA falling , from double‐digit figures, at an annual rate, to 7 to 8 percent.