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Definition: Stagflation

Stagflation is a phenomenon/situation of slow economic growth, low gdp growth rate, high unemployment, less corporate earnings and high inflation. This is dead-cross situation since any economic policy to curb inflation may hamper gdp and unemployment may surge high.

For e.g., the condition of stagflation is said to have been severe in the 1970s when there was oil shock due to which oil prices soared high forcing inflation to rise sharply in several developed countries. One measure of stagflation is the misery index.


In the above diagram, 1 represents year 1, 2 represents year 2. It is seen that the year 2 experiences increased price kevel and lower output or GDP. Hence, the economy is said to be under stagflation.



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