Stagflation, Managerial Economics


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
Desire for a commodity This validates that a want or a desire doesn't develop into a demand except it is supported by the ability and willingness to acquire it. For example, a

Comment on the consequences of environmental degradation on the economy of a community.

When is production profitable according to price-taking firm at profit, break-even or loss? Production profitable at profit, break-even or loss: a. When TR > TC, in that cas

a. Explain why the demand for a particular brand is more elastic than the demand for all cigarettes. If Lucky Strike raised its price by 1% in 1918, was the price elast

The UN's Integrated Programme for Commodities Most of the political pressure for ICAs comes from spokesmen for the developing countries.  This is reflected in countless resolu

Define Williamson''s Model of Managerial Discretion practice?

An optimum Population Countries are often described as under populated or overpopulated.  From the economist's viewpoint these terms do not refer to the population density (i.

Illustrate the application of economic theory to some business problems

Explain the Decision-making theory Decision-making theory and game theory that recognise the conditions of imperfect knowledge and uncertainty under which business managers ope