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help! how is stagflation different from inflation?

 
 
Reply Sun 26 Jul, 2015 07:05 pm
how is stagflation different from inflation?
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Type: Question • Score: 8 • Views: 1,563 • Replies: 13
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crispams
 
  0  
Reply Sun 26 Jul, 2015 07:34 pm
@Exuperio,
Stagflation is a term used by economists to define an economy that has inflation, a slow or stagnant economic growth rate and a relatively high unemployment rate.Inflation is a term used by economists to define broad increases in prices.
Exuperio
 
  0  
Reply Sun 26 Jul, 2015 07:59 pm
@crispams,
thank you sir
0 Replies
 
xiangvae
 
  0  
Reply Mon 27 Jul, 2015 06:36 pm
@Exuperio,
In economics, stagflation, a portmanteau of stagnation and inflation, is a situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high. It is also called as Great Inflation while Inflation is a sustained increase in the general level of prices for goods and services.

https://en.wikipedia.org/wiki/Stagflation
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jeypee
 
  1  
Reply Thu 30 Jul, 2015 01:32 am
@Exuperio,
I think sir
It's important to factor in the low GDP growth as well. I think high unemployment is really more symptom on stagflation than a cause. For my money, stagflation is the most poorly understood economic phenomenon of the post-Great Depression period. An economy like the US that isn't growing shouldn't be able to produce 12% inflation.
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hara
 
  0  
Reply Thu 30 Jul, 2015 03:37 am
@Exuperio,
a moderate amount of Inflation usually coincides with economic growth, as the inflation is considered to be indicative of demand for products driving up prices. Additionally, Unemployment was formerly considered to be inversely correlated with inflation, in that as one went up, the other went down ( the Phillips Curve).

Stagflation was the term given to inflation which does not fit that mold, inflation which coincides with higher or rising unemployment.

All stagflation involves inflation, but only in certain scenarios does is inflation seen along with stagflation. stagflation describes a combination of 2 different economic indicators: the rate of inflation and the rate of unemployment. In other words, the rate inflation is expressed as a number or a percentage, whereas stagflation describes an overall microeconomic scenario experienced by an economy as a whole.
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Exuperio
 
  0  
Reply Sun 2 Aug, 2015 08:27 pm
tnx u pre
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kobi
 
  1  
Reply Wed 5 Aug, 2015 04:20 am
@Exuperio,
Stagflation is a particular type of inflation. It is characterized not only by sharply rising consumer prices, but also a stagnant economy with little or no economic growth. The growth of a national economy is measured by charting the gross domestic product from year to year. When a country's GDP ceases to rise, its economy slows on all fronts. While inflation can occur at low levels during times of economic growth, stagflation only occurs during an economic slowdown. Stagflation is also accompanied by high unemployment, which is both a byproduct of the causes of stagflation and a feature of stagflation that makes it more severe and difficult to solve.
Exuperio
 
  1  
Reply Wed 5 Aug, 2015 04:26 am
@kobi,
Sir; can i ask question?
what is the solution since high inflation and stagflation occur?
kobi
 
  1  
Reply Wed 5 Aug, 2015 04:35 am
@kobi,
inflation is an economic condition in which the price of goods and services rises. Inflation is a broad trend that impacts many different areas of the economy. Rising prices in one particular area, such as a commodity in short supply or high demand, does not constitute inflation. Instead, inflation is an across-the-board rise in what things cost. Inflation is almost always occurring in a growing economy, though often at a low, manageable level. When inflation exceeds around 10 percent per year, the result is significantly reduced buying power for consumers, since each unit of currency buys less than it did before inflation took place.
0 Replies
 
kobi
 
  1  
Reply Wed 5 Aug, 2015 04:38 am
@Exuperio,
I think the solution of this Since high inflation and stagflation occur on national, regional or worldwide levels, they are beyond the ability of individual companies or sectors of the economy to solve. Governments get involved by lowering key interest rates, strategically buying securities and, in some cases, propping up failing businesses and banks. These changes in fiscal policy can be applied beforehand to prevent inflation or afterward to bring inflation down to a manageable level.
0 Replies
 
puzzledperson
 
  1  
Reply Sun 4 Oct, 2015 08:25 pm
@Exuperio,
The replies to the original question were excellent and require no amplification.

The poster added a follow up question that was not adequately addressed: what is the solution to stagflation?

To answer that question definitively requires knowledge of the cause of stagflation; or the causes, if there are different kinds of stagflation requiring different kinds of solutions.

Since there are three main components of stagflation (high inflation, low GDP growth, and high unemployment), it might help to consider them both individually and in terms of any interrelated dynamic.

Presumably one could have a condition of high inflation and low economic growth without high unemployment, provided low economic growth represented sn equilibrium condition. After all, what constitutes low or high growth depends on the country, the age and developmental stage of its economy, and other factors. So generally we must assume a fairly sudden change in the economy, such as a recession which causes mass layoffs and raises the unemployment rate.

Low economic growth in the presence of high unemployment can reasonably be assumed to be the result of low sales (or growth in sales) resulting from low consumer demand for goods and services, at least in part because total consumer demand has been shrunk by unemployment (which reduces total wages and salaries paid).

Inflation can be caused by loose monetary policy; but if easy credit or simple money printing is responsible, it begs the question of how demand for goods and services can be low enough so that no incentive for hiring or other business expansion exists.

On the other hand, wage and salary rises written into labor contracts or accepted as a business obligation on the basis of prevailing social mores could lead businesses to pass these increased labor costs on to consumers in the form of higher prices.

One way that might work is if something acted to increase producer prices, such as an OPEC initiated oil shock, as occurred twice in the 1970s. This would increase wholesale prices since manufacturing inputs must be transported to factories and goods must be distributed to retailers. Retailers in turn may pass on these cost increases to consumers; and consume-workers may in turn agitate for cost of living increases to compensate.

In fact, during the period known for stagflation, in the 1970s and early 1980s, all of these were present: energy shocks, resulting recessions and layoffs, a vicious cycle of price and wage increases, and loose monetary policy which facilitated the inflation resulting from the vicious cycle.

Two things ended stagflation in the early 1980s.

Federal Reserve policy under Chairman Paul Volcker tightened the money supply (at its peak the prime lending rate reached 21 percent) and though this caused a deep recession and greatly exacerbated unemployment, the economic shutdown broke the inflationary cycle caused by price and wage increases; that is, business activity declined to such a drastic existent that retailers were compelled to freeze or even lower prices just to move unsold merchandise, since unemployment rose so high that consumer demand for goods and services shrank greatly rather than growing slowly as had previously been the case.

This still left the recession and high unemployment.

The government under the Reagan administration responded with classic Keynesian stimulus: huge increases in federal deficit spending as a percentage of GDP transferred wealth from the coffers of the financial sector (where it sat idle with no productive investment outlet in a recession) and into the hands of the federal government, which spent it in the economy on goods and services or transferred it to households who would, via tax credits and social spending.

The resulting increase in total economic demand (private plus public sector) -stimulated business hiring and expansion, ending the recession and ushering in growth.
puzzledperson
 
  1  
Reply Sun 4 Oct, 2015 09:05 pm
@puzzledperson,
P.S. The remark about tax credits in my penultimate paragraph requires a brief clarification: these are a stimulus only to the extent that the loss of federal revenue isn't offset by spending cuts, but instead results in larger deficit borrowing (and deficit spending).
0 Replies
 
puzzledperson
 
  1  
Reply Sun 4 Oct, 2015 09:32 pm
@puzzledperson,
P.P.S. By a vicious cycle of price and wage increases, I meant that price increases result in cost of living increases, which eat into profits, which motivates additional price increases, etc. This is more likely than usual because margins were already significantly reduced as a result of triggering events (e.g. oil shocks resulting in higher producer costs).
0 Replies
 
 

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