What Is Meant By Stagflation?

The term stagflation was frequently used in 1970's. Stagflation describes a situation where on earth unemployment and inflation co-exist side by side. Stagflation, there fore is defined as a situation in which both job loss and the rate of inflation are too high according to the accepted standard.

During rising prices, the government curtails its expenditure on unmistaken items. As a result of all in demand for the products of absolute industries, recessionary tendencies begin to develop.On the other hand due to inflationary pressure surrounded by the economy, the government's expenditure increase on salaries, dearness allowances etc, it further leads to rise within prices.
When inflation is combined with unemployment, the government adopt expansionary fiscal and monetary policy for the increasing investment in the country.

It further promotes inflation. The government lay down cuts on imports. The slackening in import, decline in consumption products causes imbalance in the discount. The inflation and stagflation thus co-exist side by side.In the period of soaring prices, the real disposal incomes of the household as well s of the firms are decline. The money income of household and the investors is also reduced due to the allowance of higher domestic tax bills. When the customers and the investors are left beside small disposable income, the demand for goods will decreases. The slop in demand for goods lead to rising unemployment.

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