Stagflation results in three things: high inflation, stagnation, and unemployment. In other words, stagflation creates an economy characterized by quickly rising prices and no economic growth (and possibly an economic contraction), which brings about high unemployment.
What caused stagflation quizlet?
Stagflation is caused by a shift of the aggregate supply curve to the left . An adjusted measure of inflation (a persistent increase in the average price level in the economy) that removes the distortions of the most volatile prices of items such as food and energy. ... The growth of real output in an economy over time.
What are the two causes of stagflation?
Stagflation is stagnant economic growth plus high inflation and high unemployment. It is caused by conflicting contractionary and expansionary fiscal policies . Stagflation got its name during the 1973-1975 recession, when GDP growth was negative for five quarters.
What is stagflation stagflation occurs when quizlet?
Stagflation occurs when. a supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP . At the new short run equilibrium , the unemployment rate will. be lower. compared to the unemployment rate at the initial equilibrium, prior to the increase in exports.
What is meant by stagflation?
Stagflation is characterized by slow economic growth and relatively high unemployment —or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).
What causes stagflation and stagflation?
Stagflation, in this view, is caused by cost-push inflation . Cost-push inflation occurs when some force or condition increases the costs of production. ... In particular, an adverse shock to aggregate supply, such as an increase in oil prices, can give rise to stagflation.
Why is stagflation such a serious problem?
Stagflation tends to increase unemployment and prices , making it difficult for people to buy the goods they need and find new economic opportunities. Stagflation is also bad because it is so difficult to solve. A typical solution for poor economic performance is to boost government spending.
How can stagflation be prevented?
- Monetary policy can generally try to reduce inflation (higher interest rates) or increase economic growth (cut interest rates). ...
- One solution to make the economy less vulnerable to stagflation is to reduce the economies dependency on oil.
How did stagflation affect the economy?
The term “stagflation” was coined in the 1970s, when the United States began experiencing inflation during a recession . ... The combination of all these economic and regulatory factors led to double-digit inflation rates in 1973 and 1974, and nearly doubled the unemployment rate. Naturally, consumer spending plummeted.
What shock causes stagflation?
A supply shock can cause stagflation due to a combination of rising prices and falling output. In the short run, an economy-wide positive supply shock will shift the aggregate supply curve rightward, increasing output and decreasing the price level.
What curve shifts to the left when stagflation occurs?
The aggregate supply curve shifts to the left as the price of key inputs rises, making a combination of lower output, higher unemployment, and higher inflation possible. When an economy experiences stagnant growth and high inflation at the same time it is referred to as stagflation.
What causes cost-push inflation?
Cost-push inflation occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials . ... Since the demand for goods hasn’t changed, the price increases from production are passed onto consumers creating cost-push inflation.
What is an example of stagflation?
For example, if there’s a sudden, unexpected increase in the price of a commodity like oil, prices surge accordingly while profits drop . The conflict between increased prices and reduced profits leads to a stagflation situation.
What is the word function of stagflation?
: persistent inflation combined with stagnant consumer demand and relatively high unemployment .
What is another word for stagflation?
| recession slump | credit squeeze inactivity | crash decline | collapse bankruptcy | slide unemployment |
|---|
What are three indicators of stagflation?
Stagflation is an economic phenomenon marked by persistent high inflation, high unemployment, and stagnant demand in a country’s economy .
