in the price of oil. An unfavourable situation like that tends to raise prices at the same time as it slows economic growth by making production more costly and less profitable. Second, the government can cause stagflation if it creates policies that harm industry while growing the money supply too quickly. These two things would probably have to occur simultaneously because policies that slow economic growth do not usually cause inflation, and policies that cause inflation do not usually slow economic growth. Supply shock At the start of the Six-Day War when Israel invaded the Sinai Peninsula all the way down to the Suez Canal. The Egyptian President Gamal Abdel Nasser, who was aligning with the Soviet Union, closed down the Suez Canal for eight years starting in 1967 as soon as the Six-Day War broke out. Oil through the Suez Canal from the Middle East to Europe had to be rerouted around the Continent of Africa. When Egypt tried to cross the Suez Canal and take back the Sinai Peninsula in the Yom Kippur War in late 1973, that is what triggered the Oil embargo in October 1973, when Richard Nixon supported funding Israel with $2.2 billion over the conflict. That resulted in OAPEC countries cutting production of oil and placing an embargo on oil exports to the United States and other countries backing Israel. Excess demand Money supply in the early 1970s increased at almost 15% year over year in the United States and the Consumer price index lags behind about one year or two. Britains monetary policy was also dovish causing excess demand. End of Bretton Woods system In the mid 1970s the Bretton Woods system was failing and countries fixed exchange rate system between currencies started to float, and the Gold standard where currencies were pegged to gold was abandoned. The price of gold and oil became very volatile after many years of steadiness. Other reasons A wide range of diverse evidence has been compiled supporting the second explanation against the supply shock view that the 1970s stagflation was due to OPEC’s quadrupling of oil prices in October 1973. Data show that its seeds were sown during the late sixties and began to be reaped in that decade. Between 1968 and 1970 unemployment rose from 3.6% to 4.9% while the CPI inflation rose from 4.7% to 5.6%. Further in the Michigan survey expected inflation rose from