Stagflation: Definition, Causes & Effects

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  • 0:01 Definition of Stagflation
  • 0:49 Causes of Stagflation
  • 2:36 Effects of Stagflation
  • 3:03 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
There are different types of economic problems, but few match stagflation. In this lesson, you'll learn what stagflation is, what causes it, and how it affects an economy suffering from it. A short quiz follows the lesson.

Definition of Stagflation

Stagflation is an economic cycle in which there is a high rate of both inflation and stagnation. Inflation occurs when the general level of prices in an economy increases. Stagnation occurs when the production of goods and services in an economy slows down or even starts to decline. It's a period of no growth or even an economic contraction, or shrinking of an economy.

Stagnation causes a high degree of unemployment because you don't need employees if you aren't producing. Stagflation is a very serious problem because the usual tools we use to fix inflation tend to make stagnation and unemployment worse, while the tools we use to fix stagnation and unemployment tend to make inflation worse.

Causes of Stagflation

Economists have come up with two primary theories of why stagflation occurs. Let's take a look at each theory:

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