Which factor was a major cause of the stagnant economy in the united states during the early 1970s?
a) the end of the cold war
b) the increased prices for oil
c) the dependency on imported food
d) the decline in service sector jobs

The correct answer is B. The major cause of the stagnant economy in the United States during the early 1970s was the increased prices for oil, as a result of the 1973 Oil Crisis.

The 1973 Oil Crisis consolidated the creation of a new phenomenon little known until then: "stagflation". The extraordinary increase in the price of this resource produced, among other effects, a huge increase in production costs, forcing companies to raise the prices of goods in that same proportion. The increase in the general level of prices was not balanced with demand as in previous cases, which resulted in lower consumption and therefore a reduction in production, which also generated higher unemployment. For the first time inflation and unemployment coexisted.

The government, which for decades had grown by fostering public investment and social assistance, no longer had effective tools to combat this new phenomenon. Inflation had become a real problem that, according to liberal economists, could only be solved by stabilizing the money supply. This inevitably required a fiscal adjustment, either through greater debt, higher collection or lower public spending. The main problem with these "stabilization plans" was that they required a total restructuring of the economy, not just isolated reforms. To make matters worse, inflation was not usually reduced immediately, but as a result of "drag" it remained at high levels for some time, thus sharpening the recessionary picture.

In parallel, liberal economists began to question Keynesian policies, arguing not only economic issues, but also socio-political factors. All this led to the emergence of a new socio-economic current: neoliberalism, which would reach its peak during the 1980s and 1990s based on the ideas of the Chicago School and the Washington Consensus.

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