What does stagflation mean?


Stagflation

Stagflation

Many explanations have emerged for this phenomenon, one of the most important of these reasons is that the rise in the prices of raw materials leads to an increase in the costs of production of goods and services in developed countries, which has led to a shortage in the overall supply of goods and services and thus increased unemployment, on the one hand, and on the other hand, an increase in the general level of prices. It means an increase in inflation, that is, they are a reflection of the relationship between inflation and unemployment, as these two variables have an inverse relationship. One rare case in the economy, and it is called “stagflation”, which expresses the inability of the economy to fully operate its resources to absorb unemployment, despite the rise in prices. It first appeared in Europe in the seventies after the application of the Keynesian theory.