Stagflation, Managerial Economics

Assignment Help:

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.


Related Discussions:- Stagflation

Mathematical approach to revenue and cost functions, A MATHEMATICAL APPROAC...

A MATHEMATICAL APPROACH TO REVENUE AND COST FUNCTIONS Recall that TR = P x Q This implies that P(AR) = TR                                     Q For example, assuming

Amount of labor , One lumber producer may locate a plant in the same area....

One lumber producer may locate a plant in the same area.  If it does, there will be more competition for labor and the labor supply function facing Northern will shift to

Decision tree construction of a fast food outlet, construct a decision tree...

construct a decision tree for the baked potatoes outlet using sales per day, number of days that quantity is sold together with selling prices per unit and average costs

Profit maximization, arguments in favour of traditional theory of profit ma...

arguments in favour of traditional theory of profit maximization

Indirect taxes, INDIRECT TAXES These are imposed on an individual most...

INDIRECT TAXES These are imposed on an individual mostly producers or traders but they can be passed on to be borne by others usually the final consumers.  They can also be de

State about production theory, State about Production theory Production...

State about Production theory Production theory assists in determining the size of firm and level of production. It clarifies the relationship between marginal and average cost

Demand, what is demand estimation

what is demand estimation

Gains from international trade, Gains From International Trade The gai...

Gains From International Trade The gains from International trade are to make the participating countries better of than they would have otherwise been.   This will be the res

Appropriate management of sales, Appropriate Management of Sales: Demand f...

Appropriate Management of Sales: Demand forecasts are made area wise and after that sales targets for various areas are set in view of that. This helps the calculation of sales pe

Isoquant analysis, ISOQUANT ANALYSIS In the long run it is possible fo...

ISOQUANT ANALYSIS In the long run it is possible for a firm to produce the same output using different combinations of two factors of production.  For instance it the two fact

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd