Download Stagflation is when the economy experiences

STAGFLATION, INFLATION AND HYPERINFLATION
Stagflation is when the economy experiences
stagnant
economic
growth,
high
unemployment and high inflation. It's a highly
unusual situation because a slow economy
usually reduces demand enough to keep prices
from rising. As workers get laid off, they buy
less. As a result, businesses get into a
competitive price war to attract whatever customers remain.
Slow growth in a normal market economy prevents inflation.
Stagflation happened to a great extent during the 1970s, when world oil prices rose
dramatically, fueling sharp inflation in developed countries. For these countries,
including the U.S., stagnation increased the inflationary effects.
Economic growth is the most watched
economic indicator. It occurs when the market
value of goods and services in an economy
increases in one periode compared to another.
If the economy is producing more, businesses
are more profitable, and stock prices rise. This
Homebuilding is
economic growth
usually
a
sign
of gives companies capital to invest and hire
more employees.
As more jobs are created, incomes rise. This
gives consumers more money to buy more products and services, driving more
economic growth. For this reason, all countries want positive economic growth.
Inflation is when the prices of most goods and services continue to creep upward.
When this happens, your standard of living falls. That's because each dollar buys less,
so you have to spend more to get the same goods and services.
A small amount of inflation is often viewed as having a positive effect on the
economy.
If prices rise slowly and gradually, it can encourage people to buy now and avoid
future price increases.
This increases demand, driving further economic growth. In this way, a healthy
economy can usually sustain a 2% inflation rate.
Hyperinflation is when the prices of most goods
and services skyrocket,usually more than 50% a
month. It usually starts when a country's Federal
government begins printing money to pay
for fiscal spending.
Once consumers realize what is happening, they
expect inflation. This causes them to buy more
now to avoid paying a higher price later. When
this accelerates, it artificially boosts demand out
of control, which causes inflation to spiral into hyperinflation.
Rates of inflation of several hundred percent per month are often seen. Extreme
examples include Germany in the early 1920s when the rate of inflation hit 3.25
million percent per month, Greece in the mid-1940s with 8.55 billion percent per
month, and Hungary during the same approximate
time period at 4.19 quintillion percent per month.
Other more moderate examples include Eastern
European countries in the period of economic
transition in the early 1990s and in Bolivia and Peru
in 1985 an 1988, respectively.
What Causes Stagflation?
Stagflation is caused by circumstances
similar to those that create hyperinflation.
Both extreme situations have only occurred
when
expansive
policy artificially
fiscal
boosted
or monetary
the money
supply at the same time when supply was
constrained. Fiscal policy can print more currency, while monetary policy creates
more credit. If supply is limited or shut down, then companies can't produce more to
meet the demand created by the extra money supply.
Stagflation in the U.S. only occurred during the 1970s when the Federal government
manipulated its currency to spur economic growth, but restricted supply with wageprice controls.
Stagflation got its name during the 1973 - 1975 recession. There were six quarters of
shrinking Gross Domestic Product (GDP), while inflation tripled in 1973, rising from
3.4% to 9.6%.
It remained between 10-12% from February 1974 through April 1975.
How did this happen? Many experts blame the 1973 oil supply shocks,
when OPEC cut its quota and prices quadrupled. This did trigger some oil price
inflation. However, it took fiscal and monetary policy combined to create this
extreme stagflation.
It all started with a mild recession in 1970. Unemployment was at 6.1%, a result of
the economy contracting for three quarters. President Richard Nixon was running for
re-election, and looked for a way to boost growth without triggering inflation. On
August 13 1971, Nixon and his aides formulated four economic policies that would
succeed in getting Nixon re-elected.
The Gross Domestic Product (GDP) represents the total value of the goods and services
produced by an economy over some unit of time (a month, a season, a year etc.). The
"Domestic" part of the name comes from the fact, unlike GNP, it does not consider imports
or exports in the calculation.
The Gross National Product (GNP) is the total market value of all the goods and services
produced by all citizens and capital during a given period (usually 1 yr) in an economy (plus
the value of the goods and services imported, less the goods and services exported).
OPEC stands for The Organization of Petroleum Exporting Countries. It is an
organization of 12 oil-producing countries that effectively control the world's oil.
OPEC members pump out 42% of the world's annual supply, controlling 61% of
exports. These 12 countries hold 80% of the world's proven oil reserves.
For these reasons, OPEC's decisions are critical to countries that depend on oil
imports.