USA HISTORY

Detailed explanation-1: -What causes stagflation to occur? Stagflation is an economic condition that’s caused by a combination of slow economic growth, high unemployment, and rising prices.

Detailed explanation-2: -It was fueled by several causes-fiscal and monetary policies, the oil shocks of 1973 and 1979, lack of constraint on inflation rates and a loss in the Federal Reserve’s credibility. Together, these factors pushed the American economy into its first stagflation that lasted for 17 years.

Detailed explanation-3: -In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.

Detailed explanation-4: -However, over the long-term, when workers are fully aware of the loss of their purchasing power in an inflationary environment, their willingness to supply labor diminishes and the unemployment rate rises to the natural rate.

Detailed explanation-5: -Stagflation is a perfect storm of economic ills: slow economic growth, high unemployment, and high prices. The two root causes of stagflation economists generally agree upon are supply shocks and fiscal and monetary policies.