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Stagflation

Stagflation refers to a period of high unemployment and rising prices combined with slow economic growth. It can result from supply shocks that increase costs of production or from government policies that harm industry while also causing inflation. During the 1970s, the US experienced stagflation due to factors like the fading post-war boom, higher oil prices from OPEC, and domestic policies under Nixon. Stagflation is difficult to overcome and can persist for long periods, unlike recessions which typically end within a year. Now, high inflation and slowing growth forecasts have raised fears that conditions similar to the 1970s stagflation era may be emerging again due to impacts of the COVID pandemic and war in Ukraine on commodity

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84 views2 pages

Stagflation

Stagflation refers to a period of high unemployment and rising prices combined with slow economic growth. It can result from supply shocks that increase costs of production or from government policies that harm industry while also causing inflation. During the 1970s, the US experienced stagflation due to factors like the fading post-war boom, higher oil prices from OPEC, and domestic policies under Nixon. Stagflation is difficult to overcome and can persist for long periods, unlike recessions which typically end within a year. Now, high inflation and slowing growth forecasts have raised fears that conditions similar to the 1970s stagflation era may be emerging again due to impacts of the COVID pandemic and war in Ukraine on commodity

Uploaded by

mishraaryan846
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Stag ation

Stag ation is an economic condition that’s caused by a combination of slow economic growth,
high unemployment, and rising prices.The word is a a portmanteau of stagnation and in ation, is
generally attributed to Iain Macleod, a British Conservative party politician who became the
Chancellor of the Exchequer in 1970. Stagnation refers to a prolonged period of no economic
growth.

Reasons behind Stag ation


Economists o er two principal solutions for why stag ation can result. First, when the economy
faces a supply shock, such as a rapid increase in the price of oil. A situation like this tends to raise
prices as well as slows economic growth by making production more costly and less pro table
taking the importance of oil in all industries into proportion.

Second, the government policies that harm industry while growing the money supply too quickly
can also create such a situation. These two things would have to occur simultaneously
because policies that slow economic growth do not usually cause in ation, and policies that
cause in ation do not usually slow economic growth.

History of Stag ation


During the 1970s, stag ation occurred in the United States of America. By the late 1960s, the
post-World War II economic boom began to fade. USA faced greater international competition
and was ghting a very expensive war in Vietnam. This led to in ation and higher unemployment
rates. Then, in 1971, Nixon introduced introduced some government policies which worked as a
catalyst for stag ation. This was worsened by an oil embargo caused by the US support of Israel
during the Ramadan War.

Di erence between Recession and Stag ation


Recession is a recurring condition in a developing economy due to cycles of expansion followed
by contraction. Bursting of a nancial bubble or government policies which are austere in nature
such as increasing taxes and lower spending by the government are some factors behind this
periodic crisis . Stag ation can be long lasting and di cult to eliminate. It took USA almost a
decade to get over this nancial slump. Recessions last at least six months but they often end
within a year.

Fear of stag ation in the coming future


After Covid-19 and the Russian invasion of Ukraine, in ation rates are sky rocketing, surging to the highest
levels in decades in many countries, while economic growth forecasts are rapidly deteriorating. Russia and
Ukraine produce large amounts of gas, oil, wheat, fertilisers and other important commodities. The sanctions
on Russia by the United States and European nations along with the inability of Ukraine to export materials
have created a world wide situation similar to that of the United States during the 1970s.
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