In 1973, the major oil-producing nations of the world declared an oil embargo. The price of oil, a key source of energy, increas
ed. In many countries, this led to a fall in real GDP and employment. Which of the three business cycle theories explained in the chapter – real business cycle theory, Keynesian theory, and monetary theory – would best fit this explanation of the 1973 recession?
Among the other options, option first explains and put pressure on the role of technology in causing economic fluctuations. The new price or change in price affects the total cost of the product and so on the supply and demand. Because almost all firms use oil in one form or another, oil price changes function like technology changes.
The increase in aggregatecost decreases the productivity of the firms. The demand went down which affected the circulation of money in the market and leads to the recession.
Advertising a product changed from simply announcing the existence of a product in a dull, dry fashion to persuading the public they needed and deserved to own the product. By developing repeat customers, advertising also helped build brand loyalty for the company.
