ECONOMY SHOWING SYMPTOMS OF STAGFLATION

Subject : Economics

Context: Expansionary fiscal policy, especially increased govt spending, is needed to overcome the pandemic-induced disruptions.

Concept :

Stagflation

It is a seemingly contradictory condition described by slow economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e. inflation).
Stagflation can also be alternatively defined as a period of inflation combined with a decline in gross domestic product (GDP).
Typically, inflation rises when the economy is growing fast. That’s because people are earning more and more money and are capable of paying higher prices for the same quantity of goods.
When the economy stalls, inflation tends to dip as well – again because there is less money now chasing the same quantity of goods.

When does stagflation occur?

Stagflation is said to happen when an economy faces stagnant growth as well as persistently high inflation.
That’s because with stalled economic growth, unemployment tends to rise and existing incomes do not rise fast enough and yet, people have to contend with rising inflation.
So people find themselves pressurized from both sides as their purchasing power is reduced.