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stagflation
Sign in to saveStagflation is the combination of high inflation, stagnant economic growth, and elevated unemployment. The term stagflation, a portmanteau of "stagnation" and "inflation", was popularized, and probably coined, by British politician Iain Macleod in the 1960s, during a period of economic distress in the United Kingdom. It gained broader recognition in the 1970s after a series of global economic shocks, particularly the 1973 oil crisis, which disrupted supply chains and led to rising prices and slowing growth. Stagflation challenges traditional economic theories, which suggest that inflation and
Stagflation is an economic condition combining high inflation, slow economic growth, and high unemployment happening at the same time. It matters because it presents a difficult policy challenge, as traditional economic approaches that work against inflation tend to worsen unemployment and slow growth.
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~26 min read
Article
28 sectionsContents
- Etymology
- 1976 Sterling crisis
- Causes
- Supply shock
- Excess demand
- End of Bretton Woods system
- Other reasons
- Postwar Keynesian and monetarist views
- Early Keynesianism and monetarism
- Neo-Keynesianism
- Supply theory
- Fundamentals
- Explaining the 1970s stagflation
- Recent views
- Neoclassical views
- Zimmermann conclusion
- Alternative views
- As differential accumulation
- Demand-pull stagflation theory
- Supply-side theory
- Austrian School of economics
- Jane Jacobs and the influence of cities on stagflation
- Responses
- See also
- Notes
- References
- Further reading
- External links
Stagflation is the combination of high inflation, stagnant economic growth, and elevated unemployment. The term stagflation, a portmanteau of "stagnation" and "inflation", was popularized, and probably coined, by British politician Iain Macleod in the 1960s, during a period of economic distress in the United Kingdom. It gained broader recognition in the 1970s after a series of global economic shocks, particularly the 1973 oil crisis, which disrupted supply chains and led to rising prices and slowing growth. Stagflation challenges traditional economic theories, which suggest that inflation and unemployment are inversely related, as depicted by the Phillips Curve.
Stagflation presents a policy dilemma, as measures to curb inflation—such as tightening monetary policy—can exacerbate unemployment, while policies aimed at reducing unemployment may fuel inflation. In economic theory, there are two main explanations for stagflation: supply shocks, such as a sharp increase in oil prices, and misguided government policies that hinder industrial output while expanding the money supply too rapidly. The stagflation of the 1970s led to a reevaluation of Keynesian economic policies and contributed to the rise of alternative economic theories, including monetarism and supply-side economics.