Principles of Macroeconomics / Unit 8 MAC 0718 short lesson, about 20 seconds
Stagflation
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The idea
When short-run supply shifts left, the price level rises and real GDP falls at the same time. Rising prices with falling output is called stagflation.
In practice
The oil shocks of the nineteen seventies are the standard case.
Where people slip
It is the combination that makes stagflation hard for policy: anything that raises output raises prices further, and anything that lowers prices lowers output further.
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