Why is a period of stagflation part of the normal aftermath of a period of excessive aggregate demand?
When aggregate demand is excessive, the economy will temporarily produce beyond its normal capacity. Labor markets tighten and wages rise. Machinery and raw materials may also become scarce and so start rising in price. Faced with higher costs, business firms quite naturally react by producing less and charging higher prices, thus giving rise to stagflation. It is the conjunction of inflation and economic stagnation.
You might also like to view...
How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?
Refer to the accompanying figure, which shows the market for cups of coffee. At the original market equilibrium:
A. 60 cups are sold per hour at a price of $1.50 each. B. 50 cups are sold per hour at a price of $2.50 each. C. 50 cups are sold per hour at a price of $1.00 each. D. 40 cups are sold per hour at a price of $2.00 each.
An investment pays $1,200 a quarter of the time; $1,000 half of the time; and $800 a quarter of the time. Its expected value and variance respectively are:
A. $1,000; 20,000 dollars2 B. $1,000; 40,000 dollars2 C. $1,000; 80,000 dollars2 D. $1,050; 20,000 dollars2
Exchange rates and banking systems are often the variables through which the contagion effects of a crisis are spread from one country to another
Indicate whether the statement is true or false