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

Theory of demand of managerial economics, Theory of Demand of managerial ec...

Theory of Demand of managerial economics According to Siegelman andSpencer "A business firm is an economic organisation that transforms productivity sources into goods which

High level of supervision, Let consider the following game among an employe...

Let consider the following game among an employer (Katharine) and an employee (Kevin). Katharine needs Kevin to work hard rather than loaf around and  that is why she considers spe

Plot the demand schedule and draw the demand curve for the d, Plot the dema...

Plot the demand schedule and draw the demand curve for the data given for Marijuana in the caseabove.

The acceleration principle, THE ACCELERATION PRINCIPLE Suppose that th...

THE ACCELERATION PRINCIPLE Suppose that there is a given ratio between the level of output Y t at any time t , and the capital stock required to produce it K t and that

the total cost of giving this insured service, The services of a certified...

The services of a certified psychologist cost $110 per hour, and an extended health plan covers 50 percent of that cost. Under the plan, the clients covered used 625 hours of this

GDP, real GDP is increasingly criticized for its alleged failure to adequat...

real GDP is increasingly criticized for its alleged failure to adequately measure the standard of living. To what extent do you think this criticism is valid?

Structural unemployment - reason for protection, Structural Unemployment ...

Structural Unemployment The decline of the highly localized industry due to international trade causes great problems of regional (structural) unemployment.  If it would take

What is microeconomics, What is Microeconomics It studies the principle...

What is Microeconomics It studies the principles and problems of an individual business firm or an individual industry. It services the management in evaluating and forecasting

Features of monoploy in monopolistic competition, Features of Monoploy in M...

Features of Monoploy in Monopolistic Competition Monopolistic competition has the following features from monopoly : As the products are differentiated substitutes, each b

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