Modern finance · 1950s–1990s
1973–1982
Stagflation and the Volcker shock
Oil shocks bring high inflation with high unemployment, until the Fed raises rates sharply.
The 1973 oil embargo and later shocks pushed US inflation above 13% by 1980 while unemployment rose. Fed chair Paul Volcker raised the federal funds rate to about 20% in 1981, causing a recession that brought inflation down.
💡 Why it made sense then
Inflation had become expected and built into wages and prices, and only very high rates broke the cycle.
Ideas it gave us
- 🌍 Stagflation
Stagflation is high inflation combined with slow growth and high unemployment. It's hard to fix because raising rates to cut inflation also slows the economy further.
- 🏦 Interest rate
An interest rate is the price of borrowing money, stated as a percentage of the loan per year. For savers it is the reward for lending their money to a bank.
Practise with $10,000 in play money
Free. No real money involved.