| What is Stagflation? |
by S. Wade Hansen The Worst of Both Worlds Stagflation is, economically speaking, the worst of both worlds: economic stagnation and inflation at the same time.  Hence the name---"stag" comes from stagnation and "flation" comes from inflation. Economic stagnation shows its ugly head in multiple ways. However, the two most dramatic numbers economists and politicians watch when evaluating economic stagnation are gross domestic product (GDP) and unemployment. When GDP numbers are shrinking and unemployment numbers are rising, you have economic stagnation. Inflation Inflation is the incedious loss of purchasing power that comes when a currency becomes worth less and less. Why Worry About Stagflation? Stagflation is an incredibly difficult economic problem to solve because the main tool the Federal Reserve uses to boost economic growth and curb inflation---the Federal Funds Rate---can only work on one problem at a time. [Learn more about The Monetary Policy Tools of the Federal Reserve.] If the Fed wants to combat economic stagnation, it typically lowers the Federal Funds Rate. Conversely, if the Fed wants to combat inflation, it typically raises the Federal Funds Rate. Obviously, the Fed cannot both lower and raise the Federal Funds Rate at the same time, and thus it has to choose. Should it fight economic stagnation at the cost of rising inflation, or should it fight rising inflation at the cost of economic stagnation?
Comments deemed inappropriate will be removed
3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved." |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Learning Markets Partners More Partners | Become a Partner |
 |  |  |  |  |
 |
| Learn to Invest | Reviews of Stock Brokers | Stock Picks | Technical Analysis | Broker News | Investor Education | What to Invest In | Live Market Analysis | Should I Invest? |
