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Copy of Hot Air Balloons
Transcript of Copy of Hot Air Balloons
What are the Causes of Stagflation?
Monetarists, on the other hand, blame stagflation on a rapid increase in a country's money supply
think it is caused by a combination of stringent business regulations and high taxes.
Demand Side Policies?
What Makes Stagflation Unique?
NATIONAL ECONOMICS 477
is an increase in the overall average
level of prices and not an increase in the price
of any specific product.
A term combining “Stagnation” and “Inflation” means weak growth (GDP) and inflation
Persistent high inflation combined with
high unemployment and stagnant
demand in a country's economy.
Reduction of the general level of prices in an economy.
• 1960’s Fed flooded economy with money, dropped interest rates, and raised wage rates
• 1970’s Unprecedented Concurrence of high unemployment, high inflation, and low GDP
• Traditional economic cures failed
• Unforeseen supply shock
• Economic abyss with no predesigned cure
Economists have several different theories on what causes stagflation.
Generally, it is a mixture of all three that sends a country's economy spiraling into a stagflation.
Keynesian economists believe it is triggered by a serious shock to the supply of energy or food, such as a dramatic increase in oil prices.
It was then that President Ronald Reagan instituted his plan for dealing with stagflation –Reagananomics – which focused on increasing government spending while also cutting taxes.
That was the last time the United States was faced with stagflation.
Major Cause of the 1970s Oil Crisis:
Inappropriate Macroeconomic Policies
Unfavorable Supply Shock
Oil Prices Quadrupled by OPEC
Increased Government Spending (Vietnam War)
Stock market crash
As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.
Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.
Supply Side Policies?
Congress issued a 55mph speed limit on highways.
Daylights savings time was issued year round.
GOT GAS ??