What causes stagflation?

Stagflation is an economic phenomenon that occurs when inflation is high and economic growth is low. There are no exact percentage for this event; It simply requires a set of events that create a negative situation. Stagflations can create two basic situations. The first occurs when the economy experiences a sudden decline in the offer, resulting in high prices that exceed the natural level of the market. The second situation comes from bad macroeconomic policies, such as monetary stock or government regulations. The price set by the seller is often the production costs of goods plus a percentage of profit. The stability of the price comes from the inputs necessary to create an item. Sudden price shock - such as a war that limits the availability of goods or import tariffs that increase costs - can lead to high consumer prices. Increase in prices will often lead to supply gluten, because consumers cannot afford prices for consumer goods and services. The best definition of inflation is too much dollars that chase too littlegoods. In healthy economies, inflation is to grow because more individuals and businesses have the ability to buy goods and services. It is a natural inflation and is not considered negative for the economy when it is kept under control. Unnatural inflation occurs when the government increases money supply or reduces interest rates to unsustainable levels.

Recession is often the result of stagflation. If prices for buying goods are too high, businesses will start to fail. Unemployment will increase when companies begin to release workers. This reduces the demand for goods because consumers have less money to spend for goods and services. The Government may deepen the recession by attempting to relax the perennial supply and incitement of economic growth; However, this leads to inflation and increases stagflation.

In order to repair the effects of stagflation, it must find alternative sources of production materials or produce alternative goods. RuleY must tighten money supply and raise interest rates to reduce inflation. These events will often take time and will result in a painful recovery period. Unfortunately, there is no fast and easy way to restore the economy back to its normal price level. Through slow procedures and measured steps, the government can return its economy back to normal and allow the market to restore natural prices of goods and services.