Stagflation
The occurrence of stagflation is associated with a situation of general strengthening in the momentum of prices while at the same time the pace of economic activity is declining.
Many economists believe that if the goal is to reach a faster rate of economic growth and a lower unemployment rate, then citizens should be ready to experience higher rates of inflation.
The P-F Explanation of Stagflation
Starting from a situation of equality between the current and expected rate of inflation, the central bank decides to boost the rate of economic growth by raising the growth rate of money supply
As a result, a greater supply of money enters the economy and each individual now has more money at his disposal
Because of this increase, every individual believes he has become wealthier
This raises the demand for goods and services, which in turn sets in motion an increase in the production of goods/services
Once the unemployment rate falls below the natural rate, this exerts upward pressure on price inflation
There is no long-term tradeoff between inflation and unemployment, as long as the increase in money supply growth rate is unexpected
After a time lag, people learn about the increase and adjust their conduct accordingly
Consequently, we have a decline in production and a rise in unemployment, known as stagflation
Money Supply Increases Always Undermine Growth
Increases in money supply in the modern world imply increases in the money out of nothing, and the supplier of new money obtains it by exchanging nothing for it, no goods or services.
Once money is exchanged for the products of wealth generators, it amounts to an exchange of nothing for something, amounting to a diversion of wealth from wealth generators to the holders of newly generated money.
Then What Causes Stagflation?
Increases in money supply set in motion an exchange of nothing for something which, in turn, diverts wealth from wealth generators to non-wealth generators
This weakens the wealth generation process, which weakens economic growth
The price of a good is the amount of money paid for the good
Whenever the central bank adopts an easy monetary stance, it also sets in motion stagflation in the future
What matters for the state of an economy is not the manifestation of stagflation, but rather increases in the money supply out of "thin air"
Conclusion
Increases in the money supply set in motion an exchange of nothing for something, transferring resources from wealth generators to non-wealth generators
When new money enters goods markets, it means there is more money per goods, which increases their prices
Therefore, we have an increase in goods prices along with weakening of economic growth
https://mises.org/wire/what-stagflation-and-what-causes-it
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