Stagflation Case Study

Stagflation its reasons, consequences and a solution to it.

The problem which Russia is facing according to this article is stagflation. Stagflation is defined as the time when the economy experiences a stagnant economic growth, high unemployment and high inflation. Therefore we can say that stagflation consist of three main factors which are slow-moving or suspended economic growth, a high number of work seeking people who yet unemployed, and a stable rate of increasing prices accompanied by a fall in the real value of money.

As stagflation is a mixture of three factors each should be discussed separately in order to understand weather a country is or is not going through stagflation. The first factor which is one of the main causes of stagflation

Different factors would be responsible for the different consequences. But the consequences are mainly from the first two factors.

The first factor inflation would probably responsible for fall in real incomes where people with a fixed wage or contract would get the same nominal value of money while the real value has decreased or the people getting poorer if they have saved their money in saving accounts where the interest rate is lower than the inflation rate.

The second factor, unemployment, would also be responsible for different economic problems too. These problems may include the loss of real output(real GDP) as the economy has unused labor so its producing inside the PPC curve, a loss of tax revenue for the government as unemployed people don’t pay taxes and this is also followed by costs to the government for unemployment benefits which it provides for unemployed people.

The main point is how to fix stagflation. Fixing this economical problem has many different methods according to different economists, but one method which has proved to be effective is increasing the interest rates to a point where borrowing money would be practically impossible therefore taking the country into