BPEA | 1975 No. 1

Alternative Responses of Policy to External Supply Shocks

Robert J. Gordon
Robert Gordon Headshot
Robert J. Gordon Stanley G. Harris Professor of the Social Sciences - Northwestern University

1975, No. 1

DURING 1973 and 1974 reductions in supplies of food (through natural causes) and of oil (through unnatural causes) simultaneously lowered the real income of U.S. nonfarm workers and raised the rate of inflation. An inflation-cum-recession induced by lower supplies of raw materials may call for a policy response different from the traditional tonic of demand restriction called for by a “garden-variety” inflation generated by excess demand.