Now let's talk about the unholy Trinity nobody wants which signals Stagflation.
high inflation
low economic growth
high unemployment.
Inflation is the persistent rise in the price of goods and services over time imagine buying an egg for $0.5 then after two weeks the same egg now sells for $0.8 and after a month the price has risen to $1. The more prices go up the more money becomes useless and a piece of paper.
According to the Philip curve inflation comes with economic growth which means more Jobs and less employment.
So let's get this straight rapid Economic growth comes with Economic development and advancement and creation of more factories and industries which in turn leads to the creation of jobs and higher salaries for workers.
Higher salaries means more money in circulation and signals inflation.
But what happens when an economy is having high inflation, coupled with low economic growth and high unemployment rate.
It's strange because it defies all inflationary theories because if a nation is experiencing high unemployment and low economic growth that simply means that there's not enough money circulation.
This simply means Stagflation is the worst that can happen to any economy in the world.
So as to understand this situation better, let's look at the United States stagflation that occurred in the 1970s.
So after World war II the United States economy was experiencing heavy economic growth and inflation rate was in control. But due to the Israel and arab war, in 1973 OPEC imposed an embargo on countries supporting the Israeli government and American and most other Western nations were affected. There was a sudden increase in the price of oil which caused inflation to rise.
Economy growth began to slow down due to the high cost of energy because industries and factories can no longer operate as they used to before therefore companies struggle with low demand and high operation cost also there was reduction in consumer spending and because of this workers were laid off causing high unemployment.
By 1979 the inflation rate was already at 13% the economy was experiencing stagnation with a low growth rate coupled with a high unemployment rate.
But in the early 80s the government responded through the Federal reserve by tightening monetary policies which obviously led to recession but after a while the economy started recovering and inflation rate began to come down.