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Stagflation is a portmanteau word used to describe a period
with a high rate of inflation combined with an economic recession.
The Phillips curve, which is associated with Keynesian economics suggests that stagflation is impossible because
high unemployment lowers demand for goods and services which lowers prices.
This results in low or no inflation. By contrast, monetarism which argues that
inflation is due to the money supply rather than to demand predicts that inflation can occur with high unemployment if the
government increases the money supply.
Stagflation occurred in the economies of the United Kingdom in the
1960s and 1970s and the United States in the late 1970s. The difficulty in fitting its existence within a
Keynesian framework led to a greater acceptance of monetarist theories in the 1970s and 1980s, but some still believe in Keynesian economics, saying that there was no recession at that time. The coinage of
the term has been claimed for the UK Finance Minister Iain Macleod who died
in 1970.
See also
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