2008年7月3日 星期四

Solution to Stagflation

Stagflation is a term describing an economy with both stagnation, which is basically recession and inflation at the same time.

It's a tricky situation for governments because the monetary tools available cannot solve both problems at the same time, and more so, using one tool to relieve the effects of one condition exacerbates the other.

Raising interest rates is believed to exacerbate stagnation, and the primary stagnation-fighting tool of lowering interest rates will exacerbate inflation.

According to Mr. Rodger Malcolm Mitchell, there is one, and only one, solution to stagflation which is to raise interest rates to cure inflation and increase deficit spending to cure stagnation.

Will the solution stated here be the course of action governments partake?