Stagflation

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, and 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.

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