Macropoland Case Study

During 1973-74, there was steep rise in the oil price mainly because of fall in the oil output from the Arab nations; the price of Saudi Arabian oil went from $2.59 to $11.65 barrel, a hike of almost 350%. This resulted in steep rise in the energy price for the countries like Macropoland - an natural gas and oil importer country. So there was substantial rise in cost of production for the Macropoland economy, which resulted in large fall aggregate supply. It is this fall in aggregate supply that was responsible for large inflation and unemployment rate (a situation called stagflation) during this period. In other words, it was cost pull inflation (driven by high crude oil price) that was responsible for stagflation in Macropoland economy during 1973-1974.
In 2007-09, there was global economic slowdown wherein some economies very slow and some economies had negative output growth. Many countries like United States, Macropoland (in this case) are still not able to recover from that crisis and continue to reel with slow economic growth. The economy is facing sluggish consumption and investment growth and as a result, economy is having low level of aggregate demand. Since aggregate demand is low in the economy, the Macropoland economy has high level of unemployment and low level of inflation. This situation is known as stagnation and has resulted because of lack of sufficient