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Explain why the rate of inflation reacted in oil prices

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Question: Following the first energy shock in 1973, when oil prices rose $10/bbl, the rate of inflation averaged 8% for the next five years. Following the second energy shock in 1979, when oil prices rose more than $20/bbl, the rate of inflation averaged 61 2% per year for the following five years. Following the third energy shock in 1990, when oil prices rose $20/bbl, the rate of inflation averaged only 2.8% per year for the next five years. Explain why the rate of inflation reacted so differently to similar changes in oil prices.

Reference no: EM131737446

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