Stagflation is an economic phenomenon characterized by the simultaneous occurrence of high inflation, high unemployment, and low economic growth, which contradicts the traditional Phillips Curve theory that suggests a trade-off between inflation and unemployment; this occurs when supply shocks, such as the oil price quadrupling in the 1970s, break the normal economic rules, forcing central banks to make difficult policy choices between fighting inflation (which may deepen recession) or fighting unemployment (which may allow prices to spiral).
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Stagflation Explained in 60 Seconds #ShortsAdded:
Stagflation. High inflation plus high unemployment plus low growth. Three crises in one. It shouldn't happen.
Phillips curve says they trade off. But supply shocks like oil crises break the rules. The 1970s saw oil prices quadruple. Central banks faced a brutal choice. Fight inflation and deepen the recession or fight unemployment and let prices spiral. Volcker chose inflation.
It took years to fix.
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