When stagflation occurs, the economy experiences a peculiar combination of high inflation and high unemployment, a scenario that poses significant challenges to policymakers and economists alike. Stagflation, a term coined in the 1960s, is characterized by a stagnant or declining economy, alongside rising prices and wages. This paradoxical situation is often referred to as the “worst of both worlds” for the economy, as it defies the traditional remedies that can be applied to combat inflation or unemployment in isolation. Understanding the causes and consequences of stagflation is crucial for designing effective economic policies to mitigate its adverse effects. In this article, we will explore the causes, symptoms, and implications of stagflation, and discuss potential strategies to address this complex economic phenomenon.
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