Stagflation Concept

Stagflation Concept

Stagflation means mean high unemployment rate with high rate of inflation .it means that there is situation where price is rising and at the same time unemployment is also rising.

Stagflation Causes

1.    High Wage Rate

Stagflation causes include the shortage of supply. There are two major causes of shortage of supply i.e. increase wage rate and increase in taxation by government. Increase wages will force firms to reduce the production due to high production cost. Therefore for reduced production not only raise the price but creates unemployment.

2.    High Tax Rates

Similarly increase in indirect taxes also raise the cost of production and therefore firm are forced to reduced the production due on enhanced cost of production and such reduction will create shortage of supply on one hand and unemployment on other hand.

Stagflation Controlling Measures

1.    Wage Control

Stagflation control measure includes minimum wage control;

2.    Tax Reduction

Stagflation may also be controlled by different tax related measure on the wages. Stagflation may also be controlled by reducing business taxes.