Stagflation, Managerial Economics

STAGFLATION

The term stagflation is a recent arrival in economic literature derived from joining together the stage of stagnation and flections of inflation. The term has been coined by economists to explain the recent paradoxical inflationary phenomenon in which sustained and substantial price increases have been accompanied by declining output and rising unemployment . until recently, it was believed by economists that a simultaneous combination of high unemployment and high inflation was not possible. This peculiar and apparently inconsistent phenomenon termed stagflation has been witnessed in the recent post. During the early 1970s. Most government were under strong political pressure to adopt the expansionary programmes to reduce unemployment; and it seems likely that the eventual effect of the 1971 foreign exchange rate realignment was to encourage a higher rate of output expansion associated with a higher rate of price increase than before1971. The large and erratic changes that followed the abandonment of fixed exchange rates in 1975 acted as a check on the increase in the real output by increasing uncertainty and thus contributed to the unexpectedly severe downturn in 1975.

Restrictive financial policies adopted to curb the very rapid rates of inflation experienced in 1973and early 1974 were associated with unusually severe decline in output and employment and with little or no fall in prices and wages. In short substantial decline in output and employment coexisted with price and wage inflation in most economies, particularly in the industrially advanced countries of the world. This situation was difference from that of chronic inflation which was ubiquitous in the developing countries during the 1950s and early 1960s. stagflation which became the unwanted hallmark of the poor economic performance in the industrially developed countries during the1970s, still pervades most of these countries. Not only have inflation and recession co existed, but they have shown a clear and undisturbing tendency to breed upon one another. During 1981----83, the economic scene in the western industrial world as a whole had been dominated by the near stagnation of economic activity entailing a strong rise in unemployment with inflation persisting alongside unemployment. During 1983 for a third consecutive year, the gross domestic product(GDP) of the industrial countries experienced markedly slow real growth. In the face of near stagnation experience in the industrially developed countries, many developing countries failed to sustain their economic expansion. The severe recession in Europe hit hard the economies of the poor countries of Asia and Africa as these depended largely on their uncertain exports of raw materials. yet , inflation remained the most pervasive problem for all the developed and developing countries. In India this situation was witnessed in the recent year when on the one hand prices in the country rose while on the other hand the engineering goods and other industries substantially curtailed their output leading to substantial unemployment in the country.

It is not easy to measure the magnitude of stagflation in an economy. While it is easy to measure inflation in terms of a sole indicator the rice index recession manifests itself in several forms including the piling up of unsold stock of goods existence of idle capacity, lay off of workers, increase in the inventory accumulation with the industries etc. Most of which are not amenable to an easy measurement.

Posted Date: 12/1/2012 5:22:31 AM | Location : United States







Related Discussions:- Stagflation, Assignment Help, Ask Question on Stagflation, Get Answer, Expert's Help, Stagflation Discussions

Write discussion on Stagflation
Your posts are moderated
Related Questions
explain the law of demand. briefly discuss the exception to the law of demand

Convertible National Currencies Currencies are convertible when holders can freely exchange them for other currencies. There are several advantages in using a particular natio

The Economics of Population Population issues became matters of economic concern when it became increasingly apparent that the problem of excess population may be a serious ob



Arc Elasticity Is the average elasticity between two given points on the curve, i.e. Because of the negative relationship between price and quantity demanded, pr

Demand for money   The demand for money is a more difficult concept than the demand for goods and services.  It refers to the desire to hold one's assets as money rather tha

Consider an industry with a sole producer, a monopolist. The latter faces cost function C(Q)= Q/2 and aggregate (inverse) demand P(Q)=1 - Q (zero for Q> 1). Illustrate all your ans

plz help tomorrow is my paper n I need help to understand this topic

Average Propensity to save The Average Propensity to Save [APS] is defined as the fraction of aggregate national income which is devoted to savings.  Thus if S denotes savin